It's that time of year. April 15th is fast approaching and borrowers are filing their income taxes. Depending on where a borrower is in a transaction, or in a timeline with negotiating a home purchase, the best advice to a buyer who has not yet filed their taxes is to wait.
The reason is that most lenders & investors require IRS form 4506-T as part of final loan approval to verify the borrower's income. Responding to requests for this form can take several weeks at this time of year, which for borrowers who just filed their taxes may delay their loan approval and closing.
So what are loan officers telling clients who haven’t filed their taxes with the IRS? Typically the borrower will qualify on 2014 income, and lenders can obtain 4506 results for 2014 and use that income to qualify. Borrowers should consider filing electronically. Even though it can (will) take several weeks from filing to get the results from the 4506 request, it is much faster than mailing in a return. If a borrower files an extension, they have until October 15th to file their final return. And if a borrower is in escrow and needs income from 2015 to qualify, they need to have filed already, or file immediately, to increase their chance of closing before the end of April.
Everyone should remember that the IRS is not always the speediest of respondents and if that 2015 income is needed for qualifying there is a very good chance the loan may be delayed waiting for those results. It is also important for borrowers to know that when it comes to documentation, every i must be dotted and t crossed. The days of limited or “no doc” loans are gone as investors want all information complete and verified.
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