Why Tax Filing Deadlines Affect Mortgage Closings
Every lender is required to obtain the last two years of tax returns from every borrower for almost every loan (sometimes we only need the most recent year). We then have to prove that the tax returns are authentic, and that they were actually filed with the IRS. We normally do this by obtaining a Tax Transcript, which is a summary of the tax returns filed. It shows status, Adjusted Gross Income, Taxable Income, etc. The information has to match exactly to the copies of the tax returns in a lender’s file.
The issue around this time of year is that if a borrower has recently filed, the Tax Transcripts may be unavailable by the time we want to close escrow. The IRS can take 2 – 4 weeks to make transcripts available for electronic returns, and 4 – 8 weeks for paper returns. Hence, if a buyer goes into contract for a 15 day close and then files paper returns, we will almost certainly be delayed while we wait for the IRS to process the returns and publish the transcripts.
Practical Advice for Borrowers Filing Returns
This is what we advise:
For buyers making offers with very fast closes, file your returns in person at an IRS office. Send us a copy of the stamped returns, and proof of payment of any taxes owed. The stamped returns along with proof of payment will work in lieu of the actual Tax Transcripts themselves for most loans.
If a buyer can do a 21 day or longer close, we advise them to electronically file their returns as quickly as possible.
We order the Tax Transcripts through a third party service, and the IRS can take up to 10 days to process our request. They can also reject it due to any number of reasons (fraud alert on the file, inconsistencies in the name spelling, etc), and we then have to start all over with a new order. It is often much faster for a borrower to obtain their own transcripts and send them to us. They can obtain them online through the IRS website, or they can call the IRS and have the transcripts faxed over. Borrowers who recently filed may need to assist us in obtaining their transcripts prior to closing.
One final note – as with most things, different rules apply for Jumbo loans. Most jumbo investors will require us to provide the tax transcripts themselves (stamped returns will not work), and proof that the returns were obtained from a third party (not the borrowers themselves). The only time the borrowers can obtain the returns themselves is if we document that our own request via the third party was rejected.
