By Jake Perry, Fairway Independent Mortgage Corporation and Member, CCAR’s REALTOR®/Lender Committee
What is this mysterious IRS tax transcript or Record of Account Transcript? It is an electronic record of a taxpayer’s IRS Tax Return. The IRS maintains records of exactly what an individual, couple, or business has filed every year. These records are kept so the government, a consumer, a CPA, or a mortgage company can go back and get a copy later. They document the reported income to the IRS. Mortgage companies historically have required these records as one fraud prevention mechanism.
Prior to late 2017, mortgage companies were required, in most cases, to obtain transcripts that matched the returns.
The CCAR REALTOR®/Lender Committee is very excited to announce that many mortgage loans that previously required tax transcripts no longer do. Unfortunately, not all loans were excluded from the new transcript rules. For example, loans to self-employed borrowers still require transcripts. Also, borrowers must still sign the IRS form 4506T.
Here are the situations that no longer need transcripts:
- Only hourly/salaried W2 or not employed, using documentation other than tax returns to qualify, such as Social Security or pension
- Not employed by a family member
- No tax returns in the file for any purpose
- Conventional, VA, FHA
Here are situations that still require transcripts:
- When a borrower is not required to file taxes, the lender must have a transcript that shows that there is no filed return
- Self-employed borrowers using the income from self-employment
- Manually underwritten loans
- Non-arm’s length
The changes in the IRS transcript rule will remove some delays that could previously not be prevented. Will it prevent every IRS related delay? No! It’s the government, after all.
For these and other questions about lending, contact the REALTOR®/Lender Committee at RealtorLender@ccar.net.