Tax Filing Deadline And Your Loan Application for Refinance or Purchase Mortgage

March 25th, 2010

April 15 is almost upon us, which means if you have not already filed your taxes you will need to do so soon. What does this have to do with your loan application for a refinance mortgage or a purchase mortgage?

Depending on how and when you file your federal income tax returns, your loan application process may be delayed as the lender performs an important verification prior to approving your application. Depending on how you filed your mortgage, this delay could jeopardize the mortgage rate you have locked in, due to the time to process the verification.

Income Tax Verification

For several years, mortgage lenders have been executing what is known as IRS Form 4506-T on mortgage applications for self-employed borrowers and loan applications that have federal tax returns as part of the package. If you have income from rental property, substantial bonus income (in excess of 20% to 25% of your income), commission income, or just about any income that is not on a W-2 schedule, you can assume you will need to provide your most recent one or two years of income tax returns with your mortgage application. The Form 4506-T is sent to the IRS and is your authorization to the IRS to send a copy of your tax filing for the tax years indicated to the lender. The purpose of the verification is to ensure the income tax information you provided for your refinance mortgage application or purchase mortgage application matches what you provide the IRS.

Your Income Tax Filing

Most people file their taxes electronically, but there are still those who file the traditional way by mailing the returns on or before April 15. If filed electronically, the returns are entered into the IRS system and available for verification within a few days. If filed by mail, your returns may not be available to be verified for several weeks. This delay in verifying your returns may delay the final approval and closing of your refinance or purchase mortgage–and this delay may jeopardize your mortgage rate lock.

If you are in process on a mortgage application and have not yet filed your taxes for 2009, ask your loan office what will be required for your refinance mortgage or purchase mortgage application. Some lenders will allow 4506-T verification of prior years’ taxes and allow just proof that you have filed the most recent year’s tax returns. Other lenders will require all taxes filed and verified with the 4506-T process. If this is the case with your loan application, file your taxes as soon as possible, and file electronically.

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