Early tax filers more likely to get the deal in seller’s market
By JEFF LAZERSON | Orange County Register
Closing transactions, especially purchase transactions during this tax season, may be nothing short of chaotic!
A very clear pattern I am seeing in this low-inventory, mega-multiple-offer environment is the winning bidder typically agrees to a short, 30-day escrow. In front of that, buyers are agreeing to very tight contingency timelines for signing off on property inspections, appraisals and loan approvals.
Often, final loan approval requires authenticating tax returns submitted to your lender. To do that, you need to sign and submit to the Internal Revenue Service a consent form named 4506-T.
The purpose is to detect and prevent income fraud on mortgage applications. This process resulted from yesteryear’s ugly history of loan officers and borrowers providing fake tax returns to lenders.
It’s not just enough that you or your accountant can prove your tax returns have been submitted and any taxes owed have been paid. Those numbers from your tax returns have to be entered by the IRS on a 4506-T validation.
Besides the longer data input lines generated from many predictably last-minute filers (tax returns are due next Tuesday), C-corporation returns are now due at the same time as personal returns (instead of a month earlier), according to IRS spokesman Raphael Tulino. Yes, a bigger data input crunch and greater delay.
It is taking perhaps four weeks or more for lenders to get IRS confirmation for recently filed 2016 tax returns. Yikes!
Wage earners are typically required to sign the 4506-T, but not necessarily have them validated prior to funding because lenders have already verified your income with your employer.
A few lenders will fund a loan before getting the 4506-T validation back based on proof of tax return submission and IRS payment of any taxes owed.
The most common logjam happens with conventional loans earmarked for Fannie Mae or Freddie Mac. Delays for getting tax return validation are most common for self-employed borrowers with either a schedule C or separate corporate returns, borrowers with partnerships, or borrowers with passive investment income.
Be proactive. Your loan officer or lender pre-approval will spell out if you need full tax return validation or if you can get by with less.
The key is for your lender to send out the 4506-T as soon as the loan application is filed. Even if it does take four weeks or longer to get IRS results, you may only need to beg for a little longer escrow period than the typical 30 days the listing agent demands.
Jeff Lazerson - Mortgage Columnist since 2011