Is Form 4506-C Required for a Mortgage?

Applying for a mortgage involves a thorough review of an applicant’s financial standing. IRS Form 4506-C is a standard part of this process, used for tax transcripts. Lenders use this form to verify a borrower’s income and tax history.

Purpose of Form 4506-C in Mortgage Applications

Form 4506-C serves as a consent form, giving mortgage lenders permission to directly request tax return transcripts from the IRS. It works with the IRS’s Income Verification Express Service (IVES), which allows third parties to efficiently obtain taxpayer information. This direct access to IRS records allows lenders to independently verify the income, employment, and tax history provided by a mortgage applicant.

Lenders require this form to ensure the accuracy of financial information in the underwriting process. By cross-referencing applicant-provided data with official IRS records, lenders can assess risk and confirm a borrower’s ability to repay the loan. This process helps prevent fraud and strengthens regulatory compliance within the mortgage industry.

While no federal law mandates Form 4506-C for every mortgage transaction, it has become a widely required practice by lenders. Major mortgage market players like Fannie Mae consider these transcripts a best practice for quality control. This makes the form a practical necessity for most individuals seeking a home loan, as it mitigates financial risk for the lender.

Information Required for Form 4506-C

Borrowers must provide their full legal name, including any previous names, and their Social Security Number (SSN). If filing jointly, the spouse’s name and SSN must also be included.

The form requires the current address and any previous addresses used for the tax years requested, to match IRS records. Borrowers must specify the tax years for which transcripts are being requested, typically the last two years for mortgage applications.

Borrowers will also indicate which specific IRS forms the lender needs transcripts for, such as Form 1040 (U.S. Individual Income Tax Return), W-2 (Wage and Tax Statement), and 1099 series forms. Only one tax form number can be requested per 4506-C form, meaning multiple forms may be necessary for self-employed individuals with both personal and business tax returns. The form must be signed and dated by the taxpayer(s), and for joint returns, both spouses must sign if their information is requested. The IRS will reject submissions if the form is incomplete, illegible, or contains inconsistencies.

The Process of Lender Verification Using Form 4506-C

After the borrower completes and signs Form 4506-C, the mortgage lender handles the verification. The lender submits the form to the IRS through the IVES system, often using a third-party service. This electronic submission streamlines the request and receipt of tax transcripts.

The IRS processes the request and sends the official tax transcripts directly back to the authorized lender. Processing takes a few days to a couple of weeks, though times can vary for paper-filed or amended returns. Lenders then use these transcripts to cross-reference and verify the income and financial information provided by the borrower in their mortgage application.

Underwriters compare the borrower’s stated income with the figures on the IRS transcripts. If discrepancies arise, lenders request clarification or additional documentation. Inconsistencies can delay approval, highlighting the need for accurate initial documentation. This direct verification helps lenders make informed decisions about loan eligibility and repayment capacity.