In this article, we will cover and discuss qualifying for an FHA loan with tax lien and outstanding IRS debts. FHA loans are by far the most popular residential mortgage loans today. FHA loans are government-backed home loans. FHA and Conventional loans are the two most popular loan programs in the nation.
HUD, the parent of FHA, allows borrowers with tax liens to be eligible for FHA loans. Fannie Mae and Freddie Mac do allow borrowers with outstanding IRS debts to qualify for conventional loans but they cannot have a tax lien. In the following paragraphs, we will be covering qualifying for an FHA loan with tax lien and HUD guidelines on outstanding tax debts.
Can You Get a Mortgage If You Owe Tax Debt?
HUD, the parent of FHA, is the federal agency that sets the minimum agency mortgage lending guidelines on FHA loans. FHA loans are very popular for first-time homebuyers. FHA loans are also very popular for borrowers with less-than-perfect credit and lower credit scores.
Borrowers with credit scores down to 500 FICO can qualify for an FHA loan. Outstanding collections and charged-off accounts do not have to be paid to qualify for FHA loans. HUD makes FHA loan with tax lien and IRS debts possible for homebuyers who have a written payment agreement with the IRS.
Where Can I Get an FHA Loan With a 500 Credit Score
The good news with an FHA mortgage is you have the ability to complete an FHA streamline after you have made 6 payments on your current FHA loan. Please see our FHA STREAMLINE BLOG for details on that program. Once the mortgage is reported on your credit report with at least six payments, you should see your credit scores skyrocket.
At this time if rates are lower you made do an FHA streamline. having a mortgage with on-time payments reported to the credit bureaus is the best way to positively impact your credit profile. In the eyes of the credit bureaus, mortgage debt is considered good debt. It weighs in highly with their algorithms.
Can You Get an FHA Loan If You Owe Back Taxes?
Under HUD Agency Guidelines, borrowers who owe outstanding IRS debts to the IRS and/or have a tax lien with the IRS can qualify for an FHA loan under the following conditions. HUD, the parent of FHA, allows homebuyers and homeowners to obtain FHA home loans if they owe federal income taxes as well as if they have a federal tax lien with a payment plan.
Fannie Mae Guidelines on Tax Debts To The IRS on Conventional Loans
In conventional loans, borrowers can qualify for a conventional loan with outstanding debts to the Internal revenue service but not with a federal tax lien.
HUD allows borrowers with a federal tax lien to obtain FHA financing with a written payment agreement and three monthly payments prior to the closing of their FHA loan.
HUD Guidelines For IRS Payment Plans on Tax Liens
The borrower needs to have a written payment agreement with the IRS. The written payment agreement needs to state the minimum monthly debt payments. The written repayment agreement needs to state the conditions and the term of the repayment agreement. The borrower needs to make three monthly payments to the IRS.
The borrower cannot prepay the three months upfront to qualify for an FHA loan. Show the lender proof of payment by providing them with the three months of canceled checks and/or three months’ bank statements. If the borrower has a tax lien, the above steps apply. You cannot pay the three months of minimum tax debt payments upfront for the sake of qualifying for an FHA loan. Three monthly payments need to be paid.
Does IRS Tax Lien Take Precedence Over a Mortgage?
One of the most frequently asked questions by our viewers at Gustan Cho Associates is does a tax lien from the Internal Revenue Service take precedence over a mortgage?
Federal IRS tax liens do not take precedence over home purchase and/or refinance mortgage loans. Purchase money and/or equity in a home belongs to the home buyer on home purchase and the equity belongs to homeowners under the federal statutes of the Internal Revenue Service. However, the tax lien does get attached to the property.
Subordinating IRS Lien Behind The First Position of Mortgage
All mortgage lenders want their interest (lien) on the property to be in the first position. The borrower needs to realize the lender and the IRS will be working on subordinating the lien and putting it in the second position behind the first mortgage. Borrowers should not worry about this. The lender and the IRS know exactly how this works and have done it thousands of times with no issues. So to recap, mortgage borrowers can qualify for an FHA Loan With Tax Lien And Outstanding IRS Debts From Income Taxes as long as they follow the above step-by-step instructions.
Will A Federal IRS Tax Lien Prevent Me From Getting a Mortgage?
Government Versus Conventional Loan Guidelines on Outstanding IRS Debts and Tax Liens
Qualifying For An FHA Loan Versus VA Loans With Federal Tax Liens
USDA loans, like FHA loans, allow you to qualify for a USDA loan with outstanding debts owing to the IRS and/or a federal tax lien from the IRS with a written payment agreement for at least three months. VA requires you to make a written payment agreement with the IRS if you have a tax lien and/or owe outstanding debts to the IRS. However, the Veterans Administration requires borrowers have made 12 timely payments on the written repayment agreement before they are able to qualify for VA loans.
Fannie Mae Guidelines on IRS Debts Versus Liens on Conventional Loans
You can qualify for conventional loans with outstanding IRS debts with a written payment agreement but not with a federal tax lien. Per Fannie Mae and Freddie Mac Agency Mortgage Guidelines, you cannot qualify for a conventional loan with a tax lien. The tax lien needs to be paid off and cleared before you can qualify for a conventional loan. You can qualify for a conventional loan if you owe money to the Internal Revenue Service.
Conventional Loans With Tax Liens
You cannot qualify for a conventional loan with a federal tax lien. In order to qualify for conventional loans with outstanding IRS debts, you need a written payment agreement and one monthly payment from the payment agreement needs to be made prior to closing. The IRS is very open to doing a workout and will not place a tax lien if you are in touch with them with talks about a repayment plan. They will only place a tax lien if you ignore their letters or do not bother to call them to work things out.
Why FHA Loans Are So Popular For Bad Credit?
FHA Loans are not just for borrowers with bad credit or low credit scores. The Federal Housing Administration, FHA, is a subsidiary of the United States Department of Housing and Urban Development, known by many as HUD. FHA’s function and role are to promote homeownership for homebuyers with less-than-perfect credit and low down payments.
FHA Loans For Bad Credit and Low FICO
FHA does not originate or fund residential loans. FHA’s function is to insure FHA loans to approved private lenders such as banks and mortgage companies in the event borrowers default and/or foreclose on their FHA loans. Lenders are able to originate and fund FHA loans for homebuyers with a 3.5% down payment and 580 credit scores with less-than-perfect credit at low rates due to the government guarantee. Borrowers can qualify for an FHA loan with credit scores down to 500 FICO.
HUD Guidelines For Low Credit Scores With Tax Liens
In order for FHA to insure mortgage loans to lenders, lenders need to follow strict HUD guidelines. If the loan package does not or did not meet FHA mortgage guidelines when it was originated and funded and the Loan goes into default, HUD will not insure the mortgage loan. This is why lenders are very strict in requesting proper documents.
HUD Collection and Charge-Off Accounts Guidelines on FHA Loans
Lenders need to verify borrowers meet all agency mortgage lending guidelines. FHA has extremely generous mortgage guidelines. More so than conventional loans, VA Loans, and USDA Loans. Borrowers can qualify for FHA Loans with a 3.5% down payment on a home purchase with a 580 Credit Score. FHA does not count medical collections and charge-offs. Borrowers can have medical collection accounts and charged-off accounts with balances and still qualify for FHA loans. Can you qualify for an FHA loan with tax lien? The answer to this question is yes.
Qualifying For FHA Loan For Bad Credit With Tax Lien
Tax liens and judgments are probably the two worst derogatory items consumers can have on their credit reports. Borrowers can qualify for an FHA loan with outstanding IRS debts and tax liens. The great news is borrowers can qualify for FHA Loan With Tax Lien. This holds true as long as they have a written payment agreement with the Internal Revenue Service.
Borrowers with a tax lien or owing money to the IRS also need to have made at least three monthly payments to the Internal Revenue Service. Three months of canceled checks and/or bank statements need to be provided to the mortgage underwriter.
How Do I Qualify For an FHA Loan With Tax Lien With A Written Payment Agreement?
Borrowers cannot prepay the full three months of tax lien payments all at once and consider that being in compliance. HUD requires that borrowers make at least three months’ worth of payments and need to wait three months. Same with judgment.
Borrowers with judgments can qualify for a mortgage and can have the judgment paid off at or before closing. Underwriters need to see seasoned funds that borrowers will use to pay the outstanding judgment at closing. Borrowers can also qualify for FHA Loans with outstanding judgments but needs to have a written payment agreement and three months of seasoned payments.
Qualifying For FHA Loans With Outstanding Judgments
Borrowers do not have to pay off the unpaid judgment in full to qualify for an FHA loan. Borrowers can qualify for an FHA loan as long as they have a written payment agreement with the judgment creditor. They need to have made at least three months of payments to the judgment creditor.
Can I Get an FHA Loan With Tax Debt?
Three months of canceled checks and/or bank statements need to be provided to the mortgage underwriter. Cannot just enter into a written payment agreement and pay the three months’ worth of monthly payments all at once and qualify with judgment.
HUD requires that borrowers have made at least three months’ worth of payments and three months of seasoning is required in order to qualify.
Best Mortgage Lenders Experts For Qualifying For FHA Loan With Tax Lien
Gustan Cho Associates are experts in helping borrowers with an FHA loan with tax lien. Not all mortgage companies accept FHA loan with tax lien. Even though HUD allows FHA loan with tax lien, lenders can have overlays and refuse not to accept borrowers for FHA loan with tax lien. Over 75% of our clients are borrowers who could not qualify for a home loan at other lenders due to overlays, last-minute loan denial, stress during the mortgage process, or because other lenders did not have the product they were looking for.
Homebuyers interested in qualifying for FHA Loan With Tax Lien, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Borrowers can also email us at email@example.com. I will be able to help you. The team at Gustan Cho Associates is available 7 days a week, weekends and holidays included. Gustan Cho Associates has no lender overlays on government and conventional loans.
November 1, 2022 - 9 min read