What’s the 4506-T Form?

There are lots of mortgage documents to sing when applying for a mortgage and believe it or not each one of them has it’s role in lenders getting you the mortgage you want. One of the most commonly misunderstood forms is the 4506-T

This mortgage document is the lender’s last line of defense against one of the worst problems of the previous decade, mortgage fraud. Back then there were stated-income mortgages and no-doc mortgages where lenders would accept the income as stated by the borrower.  The guidelines from Fannie-Mae and Freddie-Mac did not call for third party verification of the income stated by the borrower.

Well we all know what eventually happened due to the loose-lending policies dictated to Fannie-Mae & Freddie-Mac by the likes of Congressman Barney Frank and Senator Chris Dodd. The mortgage market imploded due to bad loans and it almost took down the world economy with it.

To make sure that does not happen again Fannie-Mae and Freddie-Mac now require all income to be documented, there are not any more stated-income mortgages or no-doc mortgages. To document income lenders now require paystubs, W-2s, and income tax returns for self-employed borrowers.

Unfortunately there are still some unscrupulous people out there and with easy access to software that can create fraudulent pay-stubs, W-2s and income tax returns lenders need some way to cross-check these submitted documents for authenticity.  To check for authenticity lenders need third-party independent verification of a borrower’s submitted income on their mortgage application.

That’s where the 4506-T that you sign with your mortgage application and loan documents comes into play. This document allows the lender for up to ninety days from the date it was signed to contact the Internal Revenue Service and cross-check the income submitted to them with the income submitted to the IRS on the mortgage applicant’s income tax return.

If the submitted income figures from the mortgage application match-up with the income submitted by the mortgage applicant to the Internal Revenue Service match then the lender knows they are dealing with good borrower and the loan is not fraudulent. On the other hand, if the income doesn’t match either they need a valid explanation or the loan will be denied.

Hopefully mortgage applicants will now have a better understanding of the misunderstood 4506-T

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