If You Owe the IRS Back Taxes Can You Still Get a New Home Mortgage?
Most People are Surprised About the Answer…
Although this is a tricky one, obtaining a new home loan approval while owing back taxes can be possible. But, it’s not easy and the lending institution Underwriters must OK the process.
In addition, certain criteria must be met. If you have tax liens on a property the tax lien will need to be paid before you can qualify for the new mortgage loan.
See the information below where I answer these questions.
If You Owe Back Taxes Can You Get a Mortgage Loan?
A client asked if they can get a new mortgage on a home they wish to purchase if they owe back taxes?
The quick answer is ‘Maybe.’
To be honest, every mortgage loan approval will hinge on the loan Underwriter and the criteria of the loan institution.
Both of the biggest mortgage loan backing institutions Fannie Mae and Freddie Mac have certain criteria regarding unpaid taxes (and as a disclaimer, this information can change at any time.)
You may not have to clear your tax debt before applying for a mortgage. However, you must have an approved IRS installment agreement in place.
The installment agreement must indicate the terms of the repayment and the monthly amount due.
In addition, you must have made several installment loan payments on the new installment agreement. You must also be current on installment payments to the IRS.
Now here is something to know – the installment payment must be included in your Debt to Income Ratios as part of the home qualification process.
I have more information on Debt to Income Ratios and how they will affect your mortgage loan approval on this website, so be sure to look for that information.
I discuss in this video the ins and outs of getting a mortgage if you owe back taxes or tax liens.
Negotiate Lower Payments with the IRS
If you plan to buy or refinance a house while repaying back taxes, it might help to negotiate a lower monthly payment and longer repayment period with the IRS. That way, you’ll qualify for more financing if you need it.
If you are not applying for a refinance or new home loan it may be a good idea to go for the highest payment you can possibly make, pay that thing off as fast as possible, and apply for your next mortgage with a clean slate.
I will say again that these things change and lending institutions change their policies frequently so be sure to discuss these matters with your mortgage loan officer or originator.
Finally, if the IRS has filed a Tax Lien against you in the county where the subject property is located – you WILL need to pay off the entire Federal Tax Debt and have the lien released prior to applying for a new mortgage.
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