Posted on: 23rd Jan, 2007 06:53 pm
I am paying extra for a stated income loan and making people sign this is like have a documented loan, this is a ripoff
People do stated income because their income is complicated
I just gave my broker notice I wont sign, guess im dont with this lender
People do stated income because their income is complicated
I just gave my broker notice I wont sign, guess im dont with this lender
Hi Pamela,
Welcome to the forums.
Stated income borrowers are often required to execute Form 4506 which authorizes the lender to request the IRS for verification of the borrower's tax returns for the past 2 years.
Lenders don't actually check the returns but they want borrowers to report income truthfully. The lenders only check the returns if borrowers default very quickly. This is done to check if the borrower has committed fraud.
I shall suggest that you sign the form as it is meant to report your income to the IRS for tax purposes.
Thanks,
Sara
Welcome to the forums.
Stated income borrowers are often required to execute Form 4506 which authorizes the lender to request the IRS for verification of the borrower's tax returns for the past 2 years.
Lenders don't actually check the returns but they want borrowers to report income truthfully. The lenders only check the returns if borrowers default very quickly. This is done to check if the borrower has committed fraud.
I shall suggest that you sign the form as it is meant to report your income to the IRS for tax purposes.
Thanks,
Sara
"I shall suggest that you sign the form as it is meant to report your income to the IRS for tax purposes. "
That has nothing to do with reporting my income
Regardless 2 attorneys 1 family and one hired thats I should simply find another lender and told me horror stories this form causes.
Lenders use it now all the time pre closing thats the whole idea of them being able to get the tax transcripts in 48 hours, so they can do it pre not post.
That has nothing to do with reporting my income
Regardless 2 attorneys 1 family and one hired thats I should simply find another lender and told me horror stories this form causes.
Lenders use it now all the time pre closing thats the whole idea of them being able to get the tax transcripts in 48 hours, so they can do it pre not post.
Having formerly worked with Fannie Mae and other secondary investors they DO execute the IRS 4506 form pre-funding and post-funding and not only if there is a default on the loan. So to be accurate, Pamela's concern is not without warrant.
That said, Pamela, it isn't your loan broker making this request of you. He/she certainly should have told you in advance of the requirement of this form for the lender and/or loan program they put together for you. You might want to ask your broker what other programs they can find for you which don't have this form as a requirement. A no-ratio documentation type may be more appropriate for you.
Generally speaking, when the lender executes the 4506 to get a copy of tax returns, they aren't looking at your adjusted gross income. Instead, they are looking for the following 3 things.
1) gross misprepresentation of income. If an applicant stated on the loan application they make $5,000 in income monthly, but report to the IRS a total gross SALES of $27,000 then how could they possibly earn $60k? It's not possible to gain enough deductions to actually make an income FROM the IRS. Again, if the adjusted gross income is less than the stated income that's ok.
2) Gross misrepresentation of employment. The lender will usually require an applicant on a stated income loan to verify 2 years employment. If something different is reported to the IRS then there's a problem.
3) The last thing is random but I actually saw it done once. An borrower applied without their spouse on the loan and used stated income. The borrower claimed they were an employee of XYZ corporation. According to tax returns, the spouse who was NOT on the application owned XYZ corporation and did not employ the borrower at all. Oops.
So try and work with your broker in a more constructive manner to finding a better loan program fit or change brokers if that's where things are at. Either way, good luck.
That said, Pamela, it isn't your loan broker making this request of you. He/she certainly should have told you in advance of the requirement of this form for the lender and/or loan program they put together for you. You might want to ask your broker what other programs they can find for you which don't have this form as a requirement. A no-ratio documentation type may be more appropriate for you.
Generally speaking, when the lender executes the 4506 to get a copy of tax returns, they aren't looking at your adjusted gross income. Instead, they are looking for the following 3 things.
1) gross misprepresentation of income. If an applicant stated on the loan application they make $5,000 in income monthly, but report to the IRS a total gross SALES of $27,000 then how could they possibly earn $60k? It's not possible to gain enough deductions to actually make an income FROM the IRS. Again, if the adjusted gross income is less than the stated income that's ok.
2) Gross misrepresentation of employment. The lender will usually require an applicant on a stated income loan to verify 2 years employment. If something different is reported to the IRS then there's a problem.
3) The last thing is random but I actually saw it done once. An borrower applied without their spouse on the loan and used stated income. The borrower claimed they were an employee of XYZ corporation. According to tax returns, the spouse who was NOT on the application owned XYZ corporation and did not employ the borrower at all. Oops.
So try and work with your broker in a more constructive manner to finding a better loan program fit or change brokers if that's where things are at. Either way, good luck.
Thank you very much, its sad that the closing is this upcoming wed. do you see a bank say no problem we wont need it, kind of make an exception? I am putting down 30% and the house value is real good.
Or is a rule a rule I have to try to find someone else?
Thank you!
Or is a rule a rule I have to try to find someone else?
Thank you!
Hi Pamela,
The form 4506 is used by lenders to find out if at all a borrower is committing fraud.
That is why during closing lenders ask borrowers to sign a 4506 form. Before closing the lender requires two years' tax returns from borrowers who are self-employed. After closing the lender can obtain copies of the borrowers' returns from the IRS and the 4506 form will allow him to do this.
The lender will match the figures here with those the borrower has provided with the loan package. If the figures don't match somehow, then the lender finds out that the borrower has provided him with fraudulent tax returns.
In your situation, the lender has asked you to sign the form 4506 even though you have stated income loan which requires no tax return verification. This is because a stated income loan has more value when sold in the secondary market provided it has form 4506 signed.
It's not mandatory to sign the form. So you can request the lender to waive such a condition on your loan.
Thanks
The form 4506 is used by lenders to find out if at all a borrower is committing fraud.
That is why during closing lenders ask borrowers to sign a 4506 form. Before closing the lender requires two years' tax returns from borrowers who are self-employed. After closing the lender can obtain copies of the borrowers' returns from the IRS and the 4506 form will allow him to do this.
The lender will match the figures here with those the borrower has provided with the loan package. If the figures don't match somehow, then the lender finds out that the borrower has provided him with fraudulent tax returns.
In your situation, the lender has asked you to sign the form 4506 even though you have stated income loan which requires no tax return verification. This is because a stated income loan has more value when sold in the secondary market provided it has form 4506 signed.
It's not mandatory to sign the form. So you can request the lender to waive such a condition on your loan.
Thanks
helping_user,
Not every lender will allow you to waive that condition. Some will allow it to be waived, but with a price adjustment. A no-ratio loan removes all of the risk and requirement of a 4506 form and often has the same interest rate pricing as stated income.
Not every lender will allow you to waive that condition. Some will allow it to be waived, but with a price adjustment. A no-ratio loan removes all of the risk and requirement of a 4506 form and often has the same interest rate pricing as stated income.
thank you ken thank you helpinguser
quick question how hard and what time frame to turn a stated income to a no ratio if they will even waive
thanks
quick question how hard and what time frame to turn a stated income to a no ratio if they will even waive
thanks
I think it depends upon the lender one deals with.
Good morning
If anyone here knows a bank who will not require this form please let me know im sure others here would like to know too, my credit is 730 im putting down a decent down payment.
Thank you
If anyone here knows a bank who will not require this form please let me know im sure others here would like to know too, my credit is 730 im putting down a decent down payment.
Thank you
730! great credit score Pamela
Have you talked to your broker or are you so finished with him that you are done for good? If a lender has already received an application from you with income on the application form, they cannot ignore it and change you to a no ratio program. You need to apply for a no ratio program from the outset.
There are many lenders which offer this program and your FICO scores should make you an eligible candidate with any of them.
good luck.
There are many lenders which offer this program and your FICO scores should make you an eligible candidate with any of them.
good luck.
WHAT IF YOU STILL OWE THE IRS MONEY...WILL THAT HURT YOUR HOME LOAN?
Hi John,
Welcome to the forum.
Most of the lenders will require you to pay it off prior to or at closing because once you stop making payments, the IRS can put a lien on your home. However, if you have been paying off taxes for over a year and can show that you haven't been late, then the lender may consider it as debt and not require you to pay it off. It will depend more upon the underwriter and the lender's guidelines.
However, I haven't heard of any lender who won't ask you to pay off the taxes. Moreover, currently the lenders have tightened their guidelines so that getting a loan isn't that easy. So, paying off the taxes somehow makes sense to me.
Hope this helps...
God bless you.
Samantha
Welcome to the forum.
Most of the lenders will require you to pay it off prior to or at closing because once you stop making payments, the IRS can put a lien on your home. However, if you have been paying off taxes for over a year and can show that you haven't been late, then the lender may consider it as debt and not require you to pay it off. It will depend more upon the underwriter and the lender's guidelines.
However, I haven't heard of any lender who won't ask you to pay off the taxes. Moreover, currently the lenders have tightened their guidelines so that getting a loan isn't that easy. So, paying off the taxes somehow makes sense to me.
Hope this helps...
God bless you.
Samantha
To the original poster there are programs that dont require 4506 and most lenders have them its just a matter of adjusted pricing.
Over the past year the availability of thouse programs have narrowed down some and the pricing gotten worse but they are still out there.
As far as stated income loans are concerned banks started using them to prevent fraud. Reason for this is in recent years alot of people gotten a business registered (which doesnt nesseserily make any money) and they have been making up how much they make. This is causing alot of people to overestimate their ability to pay the mortgage and hence all the foreclosures recently.
So if you dont want the to sighn 4506 expect a bit higher rate and mention it to the lender you working with.
Over the past year the availability of thouse programs have narrowed down some and the pricing gotten worse but they are still out there.
As far as stated income loans are concerned banks started using them to prevent fraud. Reason for this is in recent years alot of people gotten a business registered (which doesnt nesseserily make any money) and they have been making up how much they make. This is causing alot of people to overestimate their ability to pay the mortgage and hence all the foreclosures recently.
So if you dont want the to sighn 4506 expect a bit higher rate and mention it to the lender you working with.
There's no harm I think in signing form 4506. If the industry intends to prevent frauds, then that is a good gesture after all. A lot of problems have occured in the financial markets just because homeowners have not opted for the right loan and later on ended up in foreclosure. So, it is important now that lenders prevent loan frauds by making the right judgment about the affordability of a borrower.
Hope this helps...
God bless you.
Samantha
Hope this helps...
God bless you.
Samantha