Should a mortgage refinance bank be granted access to full tax returns of the last two years?

Question

I'm shopping around to refinance my mortgage (in the USA) and one bank asked for the following information:
2018 & 2019 Tax Returns (All Pages)
2018 & 2019 W2
Most Recent Last 2 Paystubs If Paid Bi-Weekly, Most Recent Last 4 If Paid Weekly
Last 2 Months Bank Statements (All Pages)
Most Recent Retirement Statement (All Pages) If Quarterly Most Recent, If Monthly Last 2

That first one seems excessive to me. I can understand wanting proof of income, but surely a single page shows that, and they shouldn't have access to every detail about my finances like this.
Is this a reasonable or excessive requirement?

Joe · Answer

It is common practice in the US for the bank to ask for tax returns for the last two years.  Every mortgage and refinance I've had asked for both 1040 and W2 (usually just asking permission to get them from the IRS, which I assume makes them more confident I'm not fudging things).
This is explained to some extent in this article, which explains that tax returns include a lot of information about losses, writeoffs, etc., as well as:

Your tax returns will also tell the lender if your home has any farm income, if you pay alimony, or if you have received unemployment income.

Those all can affect your approval (or your rate).  Farm income would make you ineligible for some mortgages, alimony would need to be disclosed, and of course unemployment income would be something they want to know about.

JTP - Apologise to Monica · Answer

For what it's worth - I refinanced my HELOC (Home Equity Loan) 3 years ago. The bank only needed our retirement account statements and proof of homeowner insurance. But, as we are retired, the tax returns wouldn't have been of too much value to them, anyway. Each situation is different, but yes, it's reasonable to ask for this.
It's good practice to keep copies of your returns for 7 years, minimum, and this shouldn't be a burden.
(On a complete tangent - My state replied to my 2019 return asking for a copy of my W2 (fine) along with a copy of my last pay stub for 2019. Last pay stub? Pay is direct deposited. When it hits the acct, who keeps the email? I had to spend the time to go into an early January hard drive back up to locate that email. That felt far more annoying than what the bank is asking. Yes, retired, but small part time gig that gives me a W2)

Should a mortgage refinance bank be granted access to full tax returns of the last two years?

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