Ronald Regan – Trust Everyone, Verify Everything
by Evan Vanderwey on 25/02/10 at 11:49 am
IRS Transcripts.
One of the less commonly used tools in the past is becoming almost a requirement for loan approvals in today’s lending environment.
In 2003 it was common for a borrower with a good credit score (700) not to have to provide ANY documentation to support the income they “said” they made.
Almost no one (even then) agreed that was a good idea for lending. And as pendulums do, this one has swung – I think this is a good thing, if you’re prepared.
When we file our taxes today, most of us will “e-file” which means we will get our refund prior to the IRS even reviewing our submission.
When applying for a mortgage using 2009 tax return information as I did for a borrower this month, that became a little bit stressful.
Mortgage underwriters are unable (for self-employed borrowers) to use the borrower 1040 return as the only source of income verification. A copy of transcripts from the IRS is also needed. The reason for this is simple. Unlike a W2ed employee, the self-employed borrower is in full control over all of the documentation that is submitted to support her income, so there’s no W2 or weekly pay statement produced by an employer to substantiate the income. No third party proof.
So, in this case, the borrowers 1040 needs to be supported by transcripts coming directly from the IRS that “match up line by line” with what the borrower handed the lender.
Does the lender think you are lying? Is that why they are looking for third party proof? No, not really. But in the past few years they HAVE been lied to a time or two. So, in the words of Ronald Regan, “we trust everyone and verify everything.”
Need your transcripts in a hurry?
http://www.irs.gov/individuals/article/0,,id=110571,00.html
The 800 # here will give you the IRS. Follow the prompts to get to a live person (it works!). And then ask them to fax or mail them to you. You will need your most recently filed 1040 to verify that you are who you say you are. You will also need to be at a fax machine that prints the report – they cannot send to e-faxes and cannot email them.
So, if you are trying to buy a home, sell a home, close a deal as a realtor, or know someone who is, and “IRS tax transcripts” are the last condition, now you know how to make that one go away.
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