Should Borrowers Sign 4506-T for Refinancing?

The IRS form 4506-T is an important part of the home loan process. Even though you may not notice such a form amidst the numerous papers that you sign, 4506-T is bound to be one of them. In the current housing market, like we have mentioned earlier, lenders have made it mandatory for borrowers to sign the 4506-T form when they apply for a loan; be it a new home loan or an application for refinancing. This form is used by the lender to verify the borrower’s income and tax information, to make sure that it matches the details provided by the borrower. The main reason for using this form is to ward off any fraud that might have been committed while filing taxes. In case the lender detects a discrepancy in the information provided to them and in the tax transcripts from the IRS, they have the right to stop the process and deny the loan or in the situation where the customer is refinancing, the lender can ask them to return the remaining money in full.

A borrower needs to be extra careful because even a small discrepancy can lead
to “Legal Action”, depending on the lender. Some areas that are focused upon include:

• Names of dependents that appear on a 1040 but not on the mortgage
application

• Change in marital status after the application process

•Any income shown on Schedule F

•Alimony

•2106 expenses claimed on Schedule A

•A borrower claims himself employed with W2’s and pay stubs, yet transcripts
show a Schedule C income