In this blog, we will cover the guidelines for qualifying for an FHA loan with unsatisfied judgment and tax lien. FHA Loans are the most popular loan program in the United States. HUD, the parent of FHA, promotes homeownership for home buyers with prior bad credit. Homebuyers can qualify for FHA Loans with outstanding collections, charge-offs, judgments, and tax liens with a 3.5% down payment. Most lenders have overlays on FHA Loans with unsatisfied judgment and tax lien. Borrowers can qualify for FHA Loans with credit scores down to 500. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and/or conventional loans. In this article, we will cover and discuss FHA Loan With Unsatisfied Judgment And Tax Lien.
Agency Guidelines Versus Overlays on Judgments on FHA Loans
Lenders with overlays will not want to proceed with the mortgage application process until the unsatisfied judgment and/or tax lien has been paid by the borrower and recorded.
On FHA loans, the following applies:
- Lenders where will allow borrowers to pay the judgment and/or tax lien at or prior to closing and have it recorded
- The second option is to have a written payment agreement with the judgment creditor and/or the IRS and have three months of payment seasoning
- On FHA loans, you need to have three timely payments on tax liens once you have made a written payment agreement with the IRS
- You cannot pre-pay the three monthly payments in advance to qualify
- The same is with judgments
- You need to make a written payment agreement with the judgment creditor and make three monthly payments
- The reason judgments need to be addressed is that the unsatisfied judgment can transfer into the home the buyer is buying
- Any assets owned by the judgment debtor can turn into a lien if the judgment creditor pursues enforcement actions
- However, there are lenders who will approve borrowers for FHA Loan with unsatisfied judgment and tax liens as long as the borrowers have a written payment agreement and have made three timely payments
This holds true as long as they have a written payment agreement or are willing to pay it off at closing and have the title company record it.
Does FHA Require Judgments To Be Paid Off?
Some lenders will allow borrowers to qualify for FHA loans with unsatisfied judgment and tax liens. This can be done as long as borrowers have written payment agreements with judgment creditors and/or the IRS in case of tax liens. For example, say a consumer has a $20,000 unsatisfied judgment by ABC Corporation. The consumer would need to contact ABC Corporation and make a written payment agreement. If they accept $200.00 a month until the debt is paid off, the consumer must sign an agreement with them and make sure they make those payments timely. Lenders want to see a minimum of 3 months of timely payments before the borrower qualifies. Sometimes, a lender might want to see more than three months of timely payments like six months of timely payments. All payments should be made with checks. This is because lenders will want to see canceled checks. Lenders might want to see canceled checks as proof of payment and/or three months’ bank statements.
Qualifying For FHA Loans With Tax Liens
Home Buyers can qualify for FHA Loans with Tax Liens as long as they do the following:
- Pay off the federal tax debts they own and get the tax lien released by the IRS
Enter into a written payment agreement with the IRS:
- Make three months of timely payments
- Need to provide three months of canceled checks and/or bank statements
- Needs to show timely payments to the IRS
How To Get Rid Of Judgments To Qualify For FHA Loan
The only way you can get rid of a judgment is by the following :
- Filing bankruptcy
- Paying the unsatisfied judgment
- Settling with the judgment creditor
- By the statute of limitations
- Statute of limitations vary from state to state but most states’ statute of limitations is 10 years
- The judgment creditor has the option in most states to renew the statute of limitations for an additional ten years
- Personal bankruptcy will wipe out all judgments that are civil and issued by government agencies such as the IRS
The good news is that mortgage applicants can qualify for mortgages with unsatisfied judgment and tax liens.
Fannie Mae And Freddie Mac Guidelines On Tax-Liens On Conventional Loans
Conventional loans have different agency guidelines versus FHA loans. Fannie Mae and Freddie Mac do not allow federal tax-liens on conventional loans. You can owe the Internal Revenue Service money but you cannot have a tax lien. If you owe the IRS money in back taxes, you need to set up a written payment agreement, you can qualify for a conventional loan as long as you have made your first payment per the written payment agreement prior to your home closing. VA loans allow borrowers with tax liens to qualify for a VA loan. However, the borrower needs to have a written payment agreement with the IRS and have made 12 monthly payments. Agency mortgage guidelines on judgments are the same for all government and conventional loans. As long as you have a written payment agreement with the judgment creditor and have made three timely monthly payments, you can qualify for an FHA, VA, USDA, and Conventional loan.
This guide on qualifying for an FHA loan with unsatisfied judgment was updated on July 10th, 2022.
July 10, 2022 - 4 min read