FHA Loan Answers: Tax Documentation

• federal income tax returns for the most recent two years, both individual and business, including all applicable schedules, for self-employed borrowers, and
• individual federal tax returns for commissioned individuals.”

As you can see, not everyone may be required to supply tax data, but for those who are required, there are additional rules that may apply.

“The lender must obtain signed forms IRS 4506, IRS 8821, Tax Information Authorization, or whatever form or electronic retrieval service is appropriate for obtaining tax returns directly from the IRS for any loan that requires the borrower’s tax returns.”

When it comes to these tax requirements, FHA loan rules do allow for an exception. From Chapter Seven: “Business tax returns are not required if the borrower meets all of the following conditions:

• individual federal income tax returns show increasing self-employed income over the past two years
• business accounts are not the source of funds to close, and
• the FHA-insured mortgage transaction is not a cash out refinance.

Note: If the lender obtains tax transcripts directly from the IRS or an electronic retrieval service, the loan approval must be based on the transcript data. Any discrepancies between the transcripts and the borrower provided tax returns must be resolved prior to loan approval.”

This type of documentation may require additional verification by the lender, and borrowers should check with their loan officer before submitting data or making requests for data to be sent to the financial institution to learn which delivery types are acceptable.

These rules may apply both to borrowers who are currently self-employed, commission income earners, etc. or those who up until recently have been such. Discuss your specific situation with a loan officer to see if these tax documentation rules apply to you.

Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.