Got Transcripts?

When something happens repeatedly at my desk, you get to hear about it. Twice in the past few weeks we’re running into problems about federal tax returns and being able to independently verify their validity.

In applying for a home loan, your lender is tasked with finding an outside source to verify everything you tell us. With regard to income, that means we want the IRS to confirm that the numbers you’re showing us on copies of your federal tax returns match what is in their system. This is accomplished by our submitting your signed IRS form 4506-T. You’re signing one as part of your loan application packet.

Usually it’s no big deal, and we get a read out of the IRS record that matches your paper copies. Great – done. Sometimes the figures are close but don’t exactly match. That’s when your tax professional needs to get involved and write a letter of explanation about the differences. Maybe you have a draft copy of the return, and figures were tweaked before your final IRS submission. Okay, no problem.

The surprise comes when we get a response saying “no transcript found.” It’s a problem because we’re basing your qualifying income on your last two federal tax returns. If you haven’t filed the last two tax returns, we have not met loan guidelines.

Even if you rush your tax prep and walk the missing tax return to a local IRS office, it can take them eight to 10 weeks to formally process your return, so we can get a transcript. Even if you file the current year right now, we’re still looking at weeks for IRS processing and having a transcript. Either way, your escrow closing date will be delayed until we get what is required.

Could a prudent consumer check on their own records before pre-qualifying for a home loan? You bet. The IRS website at IRS.gov has a place to create an account, so you can electronically order your transcripts to be mailed to you. You could also phone 800-829-1040 and walk through the IRS phone service to have transcripts mailed. Know that we are verifying “return” transcripts and not “account” transcripts – they are two different things.

One last thing while I’m thinking about it. If you are writing off expenses on Form 2106 as “unreimbursed employee expenses”, or if you are filing Schedule C as “self-employed”: Know that those figures will be reviewed and could end up being deducted from your qualifying income. You might want to chat with your mortgage advisor before you file your taxes to be sure the numbers you submit will qualify for your loan approval.

Tammy Engel is your local Mortgage Advisor and has been working for your best interest since 1990. Contact her at 661/822-7325 for help with purchase, refinance, and reverse mortgage.