Are My Tax Returns Required for an FHA Loan?
The rules that instruct the lender how to proceed with such information gathering are found in the FHA Single Family Home Loan Handbook, HUD 4000.1. Those instructions include specific requirements for the gathering of tax paperwork and information.
Your lender will ask for a wide range of financial information; from bank account numbers to a list of residences and employers from the last two years, it all goes toward establishing the borrower's credit, income, and employment with the most up-to-date information available.
When collecting this documentation, the loan officer or underwriter must fulfil bank requirements, federal law and FHA rules that cover the type of loan being applied for; in some cases that means getting official copies of tax returns and other information.
Most applicants are required to furnish copies of their W2s from the last two years; W2s document the borrower's net and gross income plus applicable taxes and withholding, and serves as a record of actual wages earned (which verifies what the borrower listed as income on the FHA mortgage loan application).
HUD 4000.1 instructs the lender, “The Mortgagee must obtain complete individual federal income tax returns for the most recent two years, including all schedules.
HUD 4000.1 states that self-employed borrowers have additional requirements. Any applicant who owns their own business or works for themselves need to verify their income with the actual tax forms submitted for the last two years.
Borrowers cannot simply hand over copies of their version of the returns--the tax returns must be sent directly from the IRS, just like credit reports must come directly from the credit reporting agencies. Borrowers may be required to sign a release authorizing the underwriter or loan officer to request IRS forms on your behalf.
Those who are not self-employed are often able to furnish the W2s with no additional paperwork needed except for that which may be required by the FHA or banking regulations, but release forms may still be required so the lender can obtain credit reports and related information.
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