Documentation & Legal Requirements Flashcards

When underwriting a self-employed borrower, how many years of signed federal tax returns (IRS Form 1040) are typically required per GSE guidelines?

Answer: Two years

Fannie Mae and Freddie Mac guidelines typically require two years of signed federal income tax returns for self-employed borrowers to establish a stable income history.

Which IRS transcript type is used by lenders to verify a borrower's reported W-2 income and tax filing status directly with the IRS?

Answer: IRS Form 4506-C (IVES Request)

IRS Form 4506-C (IVES) is the standard form lenders use to request tax transcripts directly from the IRS to verify income documentation.

A borrower uses funds from a retirement account (401k) for a down payment. Which condition must be met for these funds to be considered acceptable sourced assets?

Answer: The account must be fully vested and the withdrawal must be documented

Retirement account funds are acceptable when the account is accessible to the borrower and the withdrawal (with any penalties) is documented with account statements.

Under GSE guidelines, what is the maximum acceptable age for income documentation (pay stubs, W-2s) at the time of closing?

Answer: 30 days for pay stubs; 2 years for W-2s

GSE guidelines require pay stubs to be dated within 30 days of application and W-2s for the most recent two tax years.

A gift letter for down payment funds must include which of the following elements to be acceptable per agency guidelines?

Answer: Dollar amount, donor relationship, property address, and statement that no repayment is required

A valid gift letter must state the dollar amount, the donor's relationship to the borrower, the subject property address, and explicitly confirm repayment is not required.

When a borrower has rental income from a property they own, which document is the primary source for qualifying that income per Fannie Mae guidelines?

Answer: Schedule E from the most recent two years' federal tax returns

Fannie Mae primarily uses Schedule E of federal tax returns over two years to calculate net rental income, applying a vacancy/maintenance factor.

Which document is used to verify a borrower's employment and income when the employer cannot be reached by phone and the borrower is a W-2 employee?

Answer: Written Verification of Employment (VOE) signed by the employer

A Written Verification of Employment (VOE) completed and signed by the employer is the standard alternative when verbal verification is unavailable.