Can I Get a Mortgage If I Owe Federal Tax Debt To the IRS?

This Article Is About Can I Qualify For A Mortgage With Outstanding IRS Debt

Can I Qualify For A Mortgage With Outstanding IRS Debt is one of the questions we often get asked at Capital Lending Network, Inc. The answer is YES. Each home mortgage loan program has its own lending requirements when it comes to its agency mortgage guidelines on outstanding debt to the Internal Revenue Service. A tax lien needs to get paid. Federal income tax debts are not dischargeable in bankruptcy. You cannot get any federal-backed loans such as government home mortgages if you are delinquent on any federal debt.

The IRS will work with taxpayers in doing a workout plan. HUD allows people with tax-liens to qualify for an FHA loan as long as they have a written payment agreement and have made three timely payments. Fannie Mae and Freddie Mac allow borrowers who owe tax debt to the IRS but you cannot have a tax lien. You need to have a written payment agreement on the outstanding tax debt and make three timely payments to qualify for conventional loans.

Qualifying For A Mortgage With Outstanding Tax Debt
Qualifying For A Mortgage With Outstanding Tax Debt

A tax lien is normally just placed on taxpayers if they do not contact the IRS to do a workout on the outstanding tax debt. One of the first things you should do if you realize you owe the IRS money is to contact them immediately and try to set up a written payment plan. You can qualify for a home mortgage with outstanding IRS debt. However, you need to have a written payment agreement with the IRS and show that you have been paying timely. Some lenders may have higher lending requirements for borrowers who have an outstanding IRS debt and/or an IRS tax lien. However, Capital Lending Network, Inc.,  is empowered by Nexa Mortgage LLC mortgage company licensed in multiple states with no lender overlays. CLN just follow the minimum agency mortgage guidelines on FHA, VA, USDA, FANNIE MAE, and FREDDIE MAC and have no additional lender overlays.

In this article, we will discuss and cover Can I Qualify For A Mortgage With Outstanding IRS Debt.

How Can I Qualify For A Mortgage With Outstanding IRS Debt

The team at Capital Lending Network, Inc. are experts in helping homebuyers or homeowners qualify for a mortgage with outstanding IRS debts.

How Can I Qualify For A Mortgage With Outstanding IRS Debt

Mortgage borrowers are eligible to qualify for a home mortgage with outstanding IRS debts as well as outstanding tax liens. HUD, VA, USDA are called government-backed loans. Each government loan program has its own agency mortgage guidelines when it comes to its eligibility requirements with outstanding IRS tax debts and/or tax liens. Fannie Mae and Freddie Mac set the rules and guidelines on outstanding tax debts and outstanding tax liens on conventional loans. In the following paragraphs, we will go over the breakdown on qualifying for government and/or conventional loans with outstanding IRS tax debts or if you have an outstanding federal tax lien.

HUD Agency Mortgage Guidelines On Outstanding IRS Debts

The United States Department of Housing and Urban Development (HUD) is the parent of the Federal Housing Administration. HUD sets the agency mortgage guidelines on FHA loans. HUD allows borrowers with outstanding IRS tax debts to qualify for an FHA loan if the following conditions are met:

  1. The borrower needs to enter into a valid written repayment agreement with the Internal Revenue Service and/or other taxing authority
  2. The borrower needs to have made timely monthly payments for at least three months
  3. The monthly scheduled payments cannot be late and must be paid on time
  4. You cannot pre-pay the three payments ahead of schedule just to meet the HUD Guidelines on outstanding IRS debts
  5. The monthly scheduled payment amount needs to be factored in as a fixed monthly debt of the borrower and calculated in the debt to income ratio calculations

HUD Agency Mortgage Guidelines On Outstanding Tax Liens
HUD Agency Mortgage Guidelines On Outstanding Tax Liens

Borrowers do not have to pay outstanding tax liens in full to qualify for an FHA loan. Borrowers who have an outstanding tax lien are eligible to qualify for an FHA loan if the following conditions are met and adhered to:

  1. The borrower needs to enter into a valid written repayment agreement with the Internal Revenue Service and/or other taxing authority
  2. The borrower needs to have made timely monthly payments for at least three months on the minimum amount due per the written payment agreement on the tax lien with the IRS
  3. The monthly scheduled payments on the tax lien cannot be late and must be paid on time
  4. You cannot pre-pay the three payments of the tax lien ahead of schedule just to meet the HUD Guidelines on outstanding IRS debts
  5. The monthly scheduled payment amount needs to be factored in as a fixed monthly debt of the borrower and calculated in the debt to income ratio calculations

The tax lien holder needs to subordinate the federal tax lien to the FHA loan. Lenders will allow this.

USDA Mortgage Guidelines On Outstanding IRS Debts And Tax Liens

USDA has the exact same mortgage guidelines on outstanding IRS debts and tax liens as HUD Agency Guidelines on FHA loans. Borrowers can qualify for USDA loans with outstanding IRS tax debts. This only holds true as long as they have a written repayment agreement with the IRS. Three months of timely monthly payments need to have been made to the IRS. Those with an IRS tax lien can qualify for a USDA loan as long as they have a written repayment agreement and have made timely payments for the past three months. The monthly payment amount on an IRS tax repayment debt will need to be included in the debt to income ratio calculations of the mortgage borrower.

Can I Qualify For A Mortgage With Outstanding IRS Debt: VA Loans

VA has the exact same agency mortgage guidelines as FHA loans when qualifying for a mortgage with outstanding IRS debt and/or tax liens with one exception. The VA requires borrowers with outstanding IRS tax debts and/or tax liens to have a written repayment agreement with the IRS and have made 12 timely payments in their repayment debts to the IRS. FHA and USDA only require three months of repayment after the executed written repayment plan with the IRS. However, the VA requires 12 monthly payments to the IRS for borrowers to be eligible for VA loans. This holds true for outstanding IRS debts as well as federal tax liens.

Importance Of Contacting The IRS And Working Out A Written Payment Payment Agreement

The Internal Revenue Service is more than eager to work out a repayment solution with taxpayers. If you find out that you have outstanding tax obligations and cannot pay the full balance, contact the IRS immediately. The IRS will never place a tax lien on you and/or your assets if you contact them and try to work things out. Request a repayment written agreement that details the balance, monthly payment amount, terms of the payments, and other conditions. This repayment agreement prepared by the IRS will be the agreement requested by your mortgage lender. Three monthly payments will be required after the executed dated written agreement. You need to provide proof of timely payment to the lender either through three canceled checks and/or three months of bank statements showing the amount paid to the IRS. You will also be required to obtain your payment history from the IRS. This can be sent to you by going to the IRS’s online payment receipt section of their website or by calling them.

The monthly minimum payment to the IRS will be part of your monthly liabilities and be counted on your debt to income ratio calculations by the mortgage underwriter. If you have an outstanding federal IRS tax lien, your loan officer will help you with obtaining a Subordination Agreement from the IRS. The secondary subordination agreement places the federal tax lien by the IRS in the second position to the FHA home mortgage lien. Lenders need to be in the first position. You will not have any issues with the IRS in having them be in the second position.

Can I Qualify For A Mortgage With Outstanding IRS Debt: Fannie Mae And Freddie Mac Guidelines On IRS Tax Debt On Conventional Loans

You cannot have a federal tax lien from the IRS and qualify for a conventional loan.

Conventional loans do not permit a federal tax lien on the county the subject property is located, unlike government loans. However, borrowers can qualify for a conventional loan with outstanding IRS tax debts if they have entered into a written repayment agreement with the IRS and made one monthly scheduled timely payment prior to closing. If the borrower has been on the repayment plan for some time, they need to provide the most recent payment reminder from the IRS showing the payments received, the next payment due, and the due date of the next payment. In the event, if the IRS has filed a tax lien against the taxpayer in the county where the subject property is located, the taxpayer needs to satisfy the federal tax lien and have it released prior to applying for a conventional loan. Only borrowers who owe the IRS an outstanding debt with a written repayment agreement can qualify for conventional loans.


Alex Carlucci is an experienced private mortgage banker. He has been in the mortgage industry for 20 years, and prides himself of his excellent customer service and communication.

7 Comments

Hi, my name is Jennifer Heller and I just sold my house and i would like to get financing to buy land and build a house on the property in fort pierce, Florida. I have 20% for a down payment and I had a chapter 13 discharge in July. I was wondering if you could help us make our dream come true. Thanks! Jennifer Heller

My husband works for DoorDash and works 72 hours a week…..he has been there about 6 months. He has been bringing home (on average $1000 a week). I have tried to get a new mortgage through my current mortgage company but they have told me that he needs to be with them two years and selling our current home before they will consider a mortgage for a new home purchase. I, personally, have been on SSDI/SSI for the last 18 years. I receive $803/ monthly between SSI/SSDI. My current home is already on the market (due to personal medical issues) and I need to find a bigger home out in the “country” out away from neighbors (that can accommodate my walker and other medical issues).

Looking into a condotel in Honolulu using a VA loan. Heard this is difficult but wanting to see if you guys are confident about being able to get one of these financed at zero down still. Thanks.

I was told by another lender my DTI was to high. Currently I have enough to payoff some of my credit cards. Our current lease is up in May,

I have worked hard to improve my credit, no payments missed or late for over 2 years, but my credit score seems to be stuck between 500- 600. When one score hits 580-600 the others don’t and everyone seems to take all 3 and uses the middle one.

Hi,

I am seeking to purchase a home as soon as possible but I have a low credit score, around 535. I would like to buy the home with my daughter who has a higher score range around 620 but she has a lower income.

Do you think you can help us?

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