In this article, we will cover and discuss the frequently asked question can I qualify for FHA loan with tax lien. The answer to can I qualify for FHA loan with tax lien is yes under certain circumstances. You can qualify for FHA loan with tax lien only if you have a written payment agreement with the Internal Revenue Service. Just having the written payment agreement with the IRS is the start of the road to qualifying for an FHA loan with an IRS tax lien. Homebuyers need to have three months of payment history payment to the Internal Revenue Service. Need to provide three months of canceled checks and/or bank statements showing documentation proof of payment.

What Are FHA Loans?

FHA loans are government-insured mortgage loans. HUD, the parent of FHA, offers very lenient credit and income requirements. FHA Home Loans is the most popular mortgage loan program available to home buyers, especially first-time home buyers and borrowers with bad credit.

HUD, the United States Department of Housing and Urban Development, is the parent of the Federal Housing Administration or FHA. HUD 4000.1 FHA Handbook is the official handbook that outlines HUD Guidelines..

HUD 4000.1 FHA Handbook also lists the requirements for borrowers in qualifying for FHA loan with tax lien and other derogatory collections and credit items. FHA loans are insured by the Federal Housing Administration (FHA) and have specific guidelines regarding borrowers’ creditworthiness. While having a tax lien doesn’t automatically disqualify you, it does affect your credit score and overall financial profile.

Credit Score Requirements

FHA loans typically have more lenient credit score requirements than conventional loans. However, having a tax lien on your credit report can significantly lower your credit score, making it harder to qualify. FHA guidelines usually require a minimum credit score, which can vary depending on the lender and other factors.

Tax Lien Resolution

Lenders may require you to resolve the tax lien before approving your FHA loan application. This means paying off the lien or setting up a payment plan with the taxing authority. Some lenders may allow you to enter a repayment plan if you provide proof of timely payments.

HUD Debt-to-Income Ratio Guidelines on FHA Loans

When evaluating your loan application, lenders consider your debt-to-income (DTI) ratio. A tax lien may affect your DTI ratio, especially if the lien requires significant monthly payments. Lenders may require a lower DTI ratio to compensate for the additional debt.

Documentation and Explanation

You’ll likely need to provide documentation of the tax lien, including any payment arrangements or resolutions. Be prepared to explain the circumstances that led to the tax lien and demonstrate how you’ve addressed the issue.

Can I Qualify For FHA Loan With Tax Lien: Lender Requirements

While FHA sets the basic guidelines, individual lenders may have their requirements and overlays. Some lenders may be more flexible than others when approving borrowers with tax liens. Shopping around and finding a lender willing to work with your situation is essential. While it’s possible to qualify for an FHA loan with a tax lien, it may require extra effort and documentation. Working with a knowledgeable lender who understands FHA guidelines and has experience with borrowers in similar situations can increase your chances of approval.

How Can I Qualify For FHA Loan With Tax Lien?

Qualifying for an FHA loan with a tax lien can be challenging but possible. In this section, we will cover some key points to consider: FHA is not a mortgage lender. HUD is a government enterprise whose role and the main function is to guarantee FHA loans that are originated and funded by private banks and lenders  Lenders need to be approved by HUD. HUD Approved mortgage lenders need to follow FHA Guidelines in order for Loans that they originate and fund to be insured in the event of borrowers defaulting on their FHA loans. HUD only requires a 3.5% down payment on a home purchase for borrowers who can meet a minimum of a 580 FICO.

Can I Qualify For FHA Loan With Tax Lien With 500 FICO Scores?

FHA will allow borrowers with credit scores between 500 credit scores and 579 credit scores to qualify for FHA Loans as long as they can put a 10% down payment on their home purchase. HUD allows a maximum of 56.9% debt to income ratio for borrowers who have at least a 620 credit score. Borrowers under 620 credit scores need to have a debt to income ratio that does not exceed 43% DTI.

Can I Qualify For FHA Loan With Tax Lien With a Chapter 7 Bankruptcy

HUD allows home buyers with a prior Chapter 7 Bankruptcy to qualify for an FHA Loan: This holds true as long as the Chapter 7 Bankruptcy discharged date has been seasoned for at least two years. HUD allows borrowers with a prior foreclosure, deed in lieu of foreclosure, and short sale to qualify for an FHA Loan. This holds true if the foreclosure, deed in lieu of foreclosure, or short sale has been seasoned for at least three years.

FHA Guidelines on Chapter 13 Bankruptcy

FHA Guidelines On FHA Loan After Chapter 13 Bankruptcy Discharge states borrowers can qualify for an FHA loan while in Chapter 13 Bankruptcy. Borrowers can qualify for FHA Loan during the Chapter 13 Bankruptcy Repayment Period. They can only qualify if they have been in the Chapter 13 Repayment Plan for at least 12 months. Timely payments in all of their Chapter 13 Trustee Payments for the past 12 months. Need Trustee Approval. Needs to be manually underwritten. There is no waiting period to qualify for an FHA Loan after the Chapter 13 Bankruptcy discharge date. But if the Chapter 13 Bankruptcy discharge date has been seasoned for less than two years, then the file needs to be a manual underwriting. All FHA manual underwriting guidelines apply.

Qualifying For FHA Loans With Collection Accounts

Under HUD 4000.1 FHA Handbook, HUD does not require borrowers to pay off outstanding collection accounts and charge off accounts. However, outstanding collection accounts with balances do affect the borrower’s debt-to-income ratios. HUD categorizes collection accounts into three separate distinct categories:

• Non-Medical Collection Accounts
• Medical Collection Accounts
• Charge Off Accounts

FHA Loan Guidelines on Medical Collections

On non-medical collection accounts, borrowers are allowed up to a total of $2,000 in outstanding unpaid collection account balance before it affects the debt to income ratios of the borrower. For any outstanding unpaid collection account balance of over $2,000 balance the following applies:

• 5% of the outstanding unpaid collection account balance will be used as a monthly debt obligation of the borrower
• It will be used in the debt-to-income calculations of the borrower
• This holds true even though the borrower does not have to make any monthly payments

Medical collections and charged-off accounts are exempt from this 5% rule. Any non-medical collections with zero balance are exempt.

Written Payment Agreements With Creditors To Lower DTI

If the 5% of the outstanding collection account balance is a large monthly figure and will disqualify borrowers from qualifying the following can apply. If the outstanding collections are high and the 5% exceeds the maximum DTI allowed, borrowers can enter into a written payment with the creditors. The payment agreement with the collection agency needs to be a written payment agreement. The date the written payment agreement is executed is the date the payment on the agreement can be used. There is no seasoning requirement for the agreed-upon payment need to be seasoned.

Using Payment of Payment Agreement of Collection Agency Versus 5% of Collection Balance

Can I qualify for FHA loan with tax lien with a written payment agreement? The answer is yes but you need to have made three monthly payments. Another frequently asked question at Gustan Cho Associates is can I qualify for an FHA loan with collection accounts with large outstanding balances? The answer to this question is YES.

There is a solution for qualifying for an FHA loan with large collection account balance if the outstanding collection disqualifies you for high debt-to-income ratio.

Whatever is agreed upon on the written payment agreement, that figure will be used in lieu of the 5% of the outstanding collection account balance. HUD does exempt medical collection accounts and charged-off accounts. Outstanding collection balances and charged-offs are exempt from a percentage of the outstanding account balances to be included in the calculations of the borrower’s debt to income ratios. This holds true no matter how much the outstanding collection account balances are

Can I Qualify For FHA Loan With Tax Lien With Written Payment Agreement

Tax Liens and Judgments are the worst things consumers can have on their credit reports. HUD Allows borrowers to qualify for FHA mortgages with outstanding tax liens. This holds true as long as they have a written payment agreement with the IRS and/or judgment creditor or collection agency. Borrowers can qualify for an FHA Loan With Tax Lien without having to pay them off in full. This holds true as long as consumers have written payment agreements with the Internal Revenue Service.  Needs three consecutive payments to them. Borrowers can provide three months’ canceled checks. Borrowers cannot prepay the monthly payments in advance to the IRS or Judgment Creditor in order to qualify. Need to make sure that three months of seasoning have passed.

This article on Can I Qualify For FHA Loan With Tax Lien Was Updated on March 7th, 2024