As we reach the holiday season, I can think of nothing more appropriate or important a gift than to give someone the gift of knowledge. Therefore, my simple offering for all of you is more information on the mortgage industry. I am hoping my gift can help you understand this simply complex industry that often has such a profound effect on most people's lives.
It is simple because most borrowers opt for a 30 year fixed, shop for what they consider a good rate, generally overpay by either paying points or getting a "free loan". Down the line, I find they bemoan the fact that things just aren't working out the way they had envisioned when they took the loan in the first place. This column is the fourth of who knows how many columns I have written or will write about the workings of the mortgage industry in an effort to teach those who want to learn about the nuts and bolts of home financing. The first one was "I didn't know that - did you?" on September 21, the second one was "The Next Seven" on October 18, and the last one to date was "More things to know" on November 2, 2006.
We will start with some tax information. The mortgage industry does not share information with the IRS but the IRS does share information with the mortgage industry. If you are asked to sign a form, generally a 4506, it allows the lender to pull your tax returns or information from the return to compare it to what you have supplied the lender. Areas of concern are the adjusted gross income, schedule C and schedule E. There are two important things to know:
1) Don't ever consider giving anything false to a lender, especially tax returns.
2) The lender generally will not pull any of the information unless you miss your first payment on the new loan or you end up in foreclosure in the first year. Realize there are billions of loans done annually and if every lender pulled information from the IRS, it would probably shut them down. (Not a bad idea but not relevant to this discussion)
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.