Q: I am looking to buy my first home pretty soon. I was wondering if you know whether banks or lenders can check with the IRS about your income or they just go by what you tell them.*
I know they check your credit report but that doesn’t tell them my real income. Only my tax return has my real income on it. Thanks for explaining this.
A: Today, mortgage lenders verify (that’s the official word) every piece of information on your loan application.
They will call your employer to verify income, check with your bank to verify the amount in your savings account, and may pull a copy of your tax return or transcript of your tax return from the IRS to verify your tax information. Even if you give your lender a copy of your tax return, you will have to sign a document that allows the lender to confirm that the information you delivered was the same information you delivered to the IRS.
A few years ago, mortgage lenders offered various kinds of mortgage products, like “no-doc” and “stated income” loans where essentially you told them what you made and no one ever checked whether you were telling the truth.
But that’s how the housing crisis began and now every single piece of information is verified. It’s as if the lending pendulum has swung in the entirely opposite direction.
These days, lenders to review each detail of a loan application with a fine tooth comb. So while your loan documentation may include your W-2 (statement about your wages that is sent to the IRS) and copies of bank statements, among many other documents, you can expect the lender to verify those documents.