Part of the FHA loan application process includes the lender running a credit check on the applicant. Depending on the type of loan and other factors, the lender may also need to contact current and/or former employers, landlords and other people who can verify income and employment data given on the FHA loan application form.
Some borrowers, including those who are self-employed, freelance or small business owners may be required to furnish additional data including tax returns, business statements and other information which can help the lender establish a history of income, credit, and employment. Some of this information is provided by the FHA borrower, some is provided by third parties (such as employment and income details) and some must come from official sources.
For example, tax returns must be obtained directly through the Internal Revenue Service by the lender. The borrower cannot supply the returns–they must come from the IRS. This insures transparency in the lending process, and insures there is no temptation or opportunity to provide documentation that has been altered or is otherwise misleading when it comes to taxes, income verification, etc.
When tax paperwork from the IRS is required, it comes in addition to any supporting documentation the borrower may be required to provide, such as W2s from previous employers or profit and loss statements for a small business.
The same is true when it comes to providing credit reporting information. While it’s up to the borrower to list all current open lines of credit and other information, this data is not complete without a credit report from each of the three major credit reporting agencies. An FHA loan applicant is not permitted to furnish these credit reports–the data must come from the three credit reporting agencies directly.
Tax documents may be required for the past two years, credit reports and other paperwork may contain details dating farther back, but when it comes to on-time payments and other information, your lender will be most concerned with the patterns established over the last two years or so. 12 months of on-time payments is the minimum in the minds of many, but the longer your favorable credit history is, the better.