What is a 4506?

What is a 4506, 4506T or 8821?

A 4506, 4506T and 8821 are IRS forms that residential mortgage lenders use to pull a copy of your recent tax returns or a transcript of them. They are used for fraud prevention on full doc and reduced documentation loans.

Most mortgage brokers and lenders will have you sign one at application or closing (or both). In the past they were used if an underwriter suspected fraud on a mortgage loan application or occasionally in a random audit after closing, but given all the changes with reduced documentation loans they are being used a lot more to prevent someone from qualifying with income that has been "over-stated."

Most lenders do not have a written policy regarding how they might interpret what they find on your tax returns with one of these forms, so it is a bit of a gray area for both lenders and borrowers. The prevailing wisdom used to be that if you were applying for a stated loan you could state income that was approximately 70 or 75% of your gross income and the other 25 or 30% would account for expenses. Given the new qualifications for stated income loans it is hard to tell what might come of any discrepancies that could show up.

Since these forms are good for 60 days from the date they are signed (usually at closing) it is possible that the loan could be rejected by a lender or someone who purchases the loan from a lender after closing.