A form 4506-T simply allows your lender to verify with the IRS that the forms you supply to prove your income match those in the possession of the IRS. The 4506-T form says:
“The IRS can provide a transcript that includes data from these information returns. State or local information is not included with the Form W-2 information.
The IRS may be able to provide this transcript information for up to 10 years. Information for the current year is generally not available until the year after it is filed with the IRS.”
For example, self-employed borrowers have to demonstrate several years of successful business and sufficient income to get mortgage approval. Mortgage lenders want to make sure that their income is trending higher, or at least not heading lower over time.
And it’s pretty easy to create a phony tax return, so naturally, mortgage lenders want to make sure that the income you report to them is the same income you reported to the IRS.
As long as the information and documents you supply your lender match those of the IRS, why should you fear the 4506-T? Well for one, the process typically takes 3 to 5 days, so your mortgage application process could take days longer.
Financial privacy, according to a recent Washington Post article. “Federal auditors say the popular ‘tax transcript’ program run by the Internal Revenue Service and used by millions of mortgage applicants a year lacks adequate security protections against disclosures of tax-return details to people who shouldn’t be allowed to obtain them,” reported the Post.
In most cases, fraud occurred when unauthorized requests were granted to criminals who obtained the victim’s private information illegally. Not by mortgage lenders or their employees.
To protect yourself, then, put your lender’s name on line 5 of the form, which identifies the third party that will obtain the transcript. In addition, specify the tax years that you agree to allow them to verify.
Verix allows borrowers to automatically pull their transcripts, under their right to personal use, and immediately share them with the lender, all in real time and with end-to-end encryption.
As a lender, you can help shave 3 to 5 days off of your application workflow with Verix, and give your borrowers greater transparency and a more fluid experience in the process.