Starting this Monday, if you have any clients who are planning to apply for a mortgage using a “Stated Income” or other limited-document approach, they had better be careful what income they post on the loan application. The IRS has recently overhauled a key income verification tool used by lenders, making it easier and faster to retrieve income tax information of borrowers.
Instead of signing the Form 4506-T at closing as most do, authorizing the lender to pull tax records, many prospective purchasers will be asked to sign the 4506 at loan application. With the new electronic procedures at IRS, the lender will now have actual return information within 24 to 48 hours, thereby enabling lenders to complete income checks before the prospective loan even gets to underwriting, saving time, expenses and spotting potential fraud up front, instead of after closing.
I am reluctant to spend the many hours and effort it takes to get a purchaser under contract, only to learn two weeks into the process that he “mis-stated” his actual income and the loan and the deal goes down in flames.
This change is not a proposal, it coming on-line Monday. To protect your time investments, do you think we should ask the lenders to do this as part of the pre-approval process? What other changes will we need to make in how financing is dealt with to insure we will be maximizing the opportunity to get to closing?
If you are a listing agent, can you be satisfied with the typical pre-qualification or pre-approval letter that says credit has been checked and verifications are pending, but there is rarely a mention about if it is a limited or no documentation loan? As a condition of accepting the offer, can you require the purchaser to direct the lender to submit the Form 4506 to the IRS?
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