For obvious reasons, lenders want to know how much you earn. Income validation is essential.
Lenders want to see that your income can support the loan payments, that you have enough money coming in to comfortably pay the mortgage while also having cash for living expenses.
There are other ways to verify your information beyond the 4506-C form. For example, if you earn a regular paycheck, you can use pay stubs to demonstrate your income. You can also use bank statements and other information to demonstrate how much you earn, as well as your regular salary.
Some loans need only a few documents for approval. Others need a variety of information; some of this information will need to be further validated by secondary sources. This process, referred to as “income validation,” is essential when you want to take out a loan. The way your income is validated, however, can change. For Fannie Mae loans, the process often relies on form 4506-C, which permits lenders to obtain financial information from the IRS.
Income Validation using Form 4506-C
Note: This is an update of an old article that was written about the previous document used for income validation.
When you apply for a loan, you’ll need to provide a wide variety of information. For loans supported by Fannie Mae, you’ll likely need tax information from the IRS. It might seem like a hassle, but this is a necessary function for completing your loan.
To request information, or to allow a lender to pull your tax documents, you’ll use IRS form 4506-C, the latest iteration of their “request for transcripts” documents.
What is the 4506-C?
The IRS may not seem like the most user-friendly organization. While they serve an important function, this large, complex government organization has many responsibilities and important tasks, which makes dealing with them, to put it mildly, frustrating.
However, they have made an effort to be more efficient, effective, and modern. The 4506-C is an example of this effort.
The Previous Version: 4506-T
Previously, the IRS was using 4506-T. This document allowed lenders to get income information from the IRS without needing a full copy of tax returns. Only a transcript was required; hence the “T” in the name. This document hid certain personal information and was delivered through fax or secured through email. The wait time was roughly three to six weeks, which caused massive delays in the mortgage process.
Transition to 4506-C
To make it more efficient, the IRS transitioned to 4506-C, a change that took place in early 2021. Also known as the Income Verification Express Service form, or “IVES,” this document was implemented by the IRS to drastically reduce wait times. With this form, lenders can get income information in roughly three days.
The IVES program is used by mortgage lenders and others involved in the mortgage or financial industry to confirm information provided by a potential borrower. Using these forms, the IRS can provide transcripts for tax returns, W2 information, and 1099 documents.
Essentially, the service automates the delivery process and makes it more efficient. This could result in a better process and faster approval or finalization of the mortgage.
There are some unique aspects of the 4506-C form, features that are unique from the previous version. For example, the 4506-C form must be completed in type; handwriting is not accepted. No cell phone images of the form or reduced-size forms are allowed, and if the borrowers did not file taxes jointly, each one will have to complete the form.
These changes, it’s hoped, will increase efficiencies and make the overall process faster and more convenient.
When is a Signed IRS Form Required?
As we have discussed, the forms permit lenders to obtain your tax transcripts directly from the IRS. This can help save time and increase efficiency when you are applying for a loan.
Fannie Mae requires lenders to get income information from each borrower who will have their income listed on the loan. Each borrower will need to complete a separate 4506-C form. However, if your income has been validated through Desktop Underwriter (the software platform used by lenders), you may not need to complete the IRS document.
When is 4506-C Required?
There are a few different situations when a lender and borrower will be required to fill out the 4506-C form. Here are a couple of examples:
When the Lender is Going Through Loan Origination
Fannie Mae does not always require the lender to submit Form 4506-C to the IRS to obtain income information. However, the lender may choose to do so during the loan origination process, as completing this step can help them fully understand, and completely verify, your income.
When Quality Control is Required
The lender may request this information later in the process as a quality-control measure. Essentially, they may request documentation to verify and support other financial information.
How to Submit IRS Authorization
If you are having trouble accessing or filling out the forms, your best option is to work with an experienced lender. These professionals understand how to complete the forms and can walk you through the process. Even if you have gone through the process before, it’s probably best to work with a mortgage professional.
Working with your lender, you should complete the form as thoroughly as possible. Make sure all fields are completed and that all the information is accurate. The lender will also need to fill out their information as the recipient of the income and tax documents. This will include their name and could also include the name of the servicer involved in the process.
Get the Support You Deserve for Your Fannie Mae Mortgage
Need help applying for a Fannie Mae loan or completing IRS form 4506-C? Contact our staff today and we’ll help you get the support you deserve.
Whether you are purchasing your first home or adding to your portfolio of investment properties, we are here to provide the service and dedication you need!