Tax Settlement For Mortgage Borrowers With Tax Liens

This blog will discuss tax settlement for borrowers with tax liens. With the advent of TurboTax, almost everyone can become a do-it-yourself tax preparer. Dale Elenteny, a senior mortgage loan originator at Gustan Cho Associates, says the following about tax settlement for mortgage borrowers with tax liens:

But as we all know, with any do-it-yourself project, there are sometimes mishaps or consequences of not being fully informed or prepared.

Most people can make their tax returns using tax software. However, the more complicated the return, the more likely one is to make a mistake. In this article, we will discuss and cover tax settlement for mortgage borrowers with tax liens.

So What Happens When You Make a Mistake?

Most tax software programs run error checks and detect any red flags. These processes are not foolproof. So what happens if you make a mistake? John Strange of Gustan Cho Associates says the following about tax settlements for mortgage borrowers with tax liens:

Well, many times, if you make a calculation error, the IRS will correct it for you and send you a notice. Hopefully, the error is not material.

More than likely, the IRS will issue a proposed assessment and allow you time to agree or disagree with their revised calculations. Once the assessment is final the IRS will send you a bill. If you owe more money than you can pay the IRS has many options available.

Fresh Start After Tax Settlement

According to the IRS, the Fresh Start Program, tax settlement, is for taxpayers who need to pay back taxes and avoid summary collection actions such as tax liens and/or bank levies. The features of the IRS Fresh Start Program are:

• The new threshold for the IRS to file a tax lien is $10,000
• This means that if you owe less than $10,000, the IRS will most likely not file a federal tax lien against you
• Installment payment agreements have been extended to 72 months from a previous 60-month plan, for taxpayers who owe less than $50,000
• Financial statements are not needed
• A payment plan can be set up entirely online and is virtually automatic provided the taxpayer is not currently on an installment payment agreement
• For taxpayers who owe more than $50,000, financial statements need to be provided

However, if a taxpayer owes more than $50,000, they have the option of paying their liability down to $50,000 so that they may qualify for the payment plan without providing financial statements to the IRS.

Offer In Compromise Tax Settlement With The IRS

Offer in Compromise-

• An Offer in Compromise is generally considered when the offered amount is the most that the IRS can expect to collect or receive from the taxpayer over a reasonable period of time
• Does this sound vague?
• What is the IRS looking for when you apply for an Offer in Compromise?

They are looking at the following:

• income, all sources, for the entire household
• including earned income
• social security
• disability
• rent received from roommates
• social services benefits such as food stamps
• other sources of financial assistance

How To Go About The Tax Settlement Process

They will want to look at your bank accounts, run asset checks, and they want to see if you own real property and whether or not you have equity in your home. Dale Elenteny, a senior mortgage loan originator at Gustan Cho Associates says the following about tax settlement with the IRS:

It is at the discretion of the IRS and nobody really knows the magic formula, but why not apply? The most that could happen is they say no.

The IRS has an Offer in Compromise pre-qualifier on their website where you enter in your financial information and your monthly debt payment. Taxpayers can find the Offer in Compromise Pre-qualifier tool here: http://irs.treasury.gov/oic_pre_qualifier/

Why Should I Pay My IRS Debt and Tax Settlement

If you owe money to the IRS and you are not on a payment plan towards paying the liability, the IRS can and will take summary collection actions such as the following:

• bank levies, federal tax liens
• earnings withhold orders
• many other drastic collection actions

Additionally, if you have unpaid tax liens and owe the IRS money, this can definitely impact the ability to purchase a new home or refinance.

Need to See Tax Advisor for Tax Settlement

The author of this article, tax settlement, was written by Alex Carlucci who is a senior loan officer with Gustan Cho Associates. Alex is a contributing associate editor and writer for Gustan Cho Associates.

Alex Carlucci is a licensed mortgage loan originator for Gustan Cho Associates Empowered by NEXA Mortgage, LLC, and is based in Oakbrook Terrace, Illinois.

Gustan Cho Associates is a mortgage company licensed in 48 states headquartered in Chandler, Arizona. We have offices throughout the United States and are licensed in multiple states. Alex is an expert in all areas of mortgage lending and his expertise is in FHA, VA loans, and Conventional loans with no overlays.

Mortgage Lender Experts With No Overlays on Tax Settlement

Gustan Cho Associates has a national reputation for helping borrowers who had prior credit issues and had a hard time qualifying for home loans due to prior credit issues and/or debt to income ratio issues. A large percentage of Alex’s borrowers are folks who could not qualify at other banks and lenders due to their lender overlays.

A lender overlay is when a bank or lender has higher credit requirements than those of FHA or Fannie Mae. For example, HUD minimum credit score requirement for a buyer to purchase a home is 580 FICO.

However, most banks and lenders may have FHA Lender Overlays. This holds true even though FHA only requires a 580 FICO credit score, they may require a 640. Alex Carlucci, due to not having any overlays on FHA loans, can approve, originate, and fund borrowers who just meet the minimum agency guidelines.

Tax Settlement Solutions for Mortgage Borrowers with Tax Liens

Learn how a tax settlement can help borrowers with tax liens get approved for a mortgage. We explain IRS repayment plans, credit protection, and expert strategies to secure your home loan with Gustan Cho Associates.

Understanding Tax Settlement and Mortgage Approval

When tax liens appear, your mortgage plans can quickly feel derailed. A lien secured by the IRS or state against your home tells lenders you have unpaid tax obligations, which raises their risk level.

Luckily, tax settlement options can clear the path to mortgage approval. At Gustan Cho Associates, we focus on turning mortgage dreams into reality—even for clients with tax debt.

In this article, you’ll learn how to use tax settlement options, IRS repayment plans, and lender guidelines to transform a lien into a cleared credit report and a new front door.

What Tax Liens Are and How They Affect Mortgages

A tax lien pops up when you don’t pay your taxes. The government says, “We want our money, and we’re putting this claim on your property so you can’t sell it until you pay up.”

Tax liens appears on your credit report and can knock down your score, making it tougher to get a mortgage. The lender might say no if the lien is still hanging around when you apply for a mortgage.

They see it as a red flag for how you handle money. The good news is that once you set up a tax settlement or a repayment plan, you can get back on track with your loan.

What’s a Tax Settlement?

A tax settlement is a deal you strike with the IRS or your state tax office to pay off your tax bill on terms you both can live with. It might trim the total, break it into manageable monthly chunks, or put the bill on hold until your finances improve.

Here Are a Few Common Ways to Settle Your Tax Bill:

• Offer in Compromise (OIC): You pay back less than the full amount you owe.
• Installment Agreement: You spread the payment over several months, making smaller, easier-to-handle payments.
• Currently Not Collectible (CNC): The IRS pauses its collection efforts because you can’t afford to pay now.

Can You Get a Mortgage if You Have a Tax Lien?

Buying a home with a tax lien on your record is possible, but the rules differ based on the loan type and what you’ve done about the lien:

FHA Loans

• You can still get an FHA loan if you have a tax lien as long as you’re on an IRS repayment plan.
• You’ll need documentation of three months’ on-time payments to keep your approval moving forward.
• The lien will have to take a lower priority than the FHA loan itself so that it will be paid off after your mortgage, not before.

VA Loans

• You can be approved for VA loans by paying off the lien entirely or sticking to a repayment plan.
• Lenders usually request proof that you make the required IRS payments on time.

Conventional Loans

• Conventional mortgage lenders take a tougher approach.
• They generally want the lien paid off and satisfied before you can close the mortgage.

Non-QM Loans

• Non-QM loans offer more wiggle room.
• These lenders might still approve you if you’re making regular payments under a repayment plan.
• Be aware that the interest rate could be higher, but it’s a way to achieve homeownership if other lenders turn you down.

Steps to Deal with a Tax Lien Before You Buy a Home

• Talk to the IRS or Your State Tax Office – Pinpoint the exact balance you owe.
• Create a Payment or Settlement Plan – Agree to a monthly figure you can realistically handle.
• Stay on Schedule with Payments – Lenders want to see you make regular, on-time payments.
• Ask for a Subordination – The IRS must let your future mortgage rank higher than the tax lien.
• Team Up with a Skilled Mortgage Broker – Firms like Gustan Cho Associates know mortgage options for borrowers with open tax settlements.

Why You Should Clear Liens Before Getting a Mortgage

• Boost your credit scores.
• Avoid a denial caused by outstanding tax bills.
• Get access to broader loan options.
• Move closer to lasting financial wellness.

Tax Settlement For Mortgage Borrowers With Tax Liens

Learn how a tax settlement can help mortgage borrowers with tax liens qualify for home loans. Explore FHA, VA, Conventional, and Non-QM solutions for borrowers with IRS debt.

Understanding Tax Settlement and Why It Matters for Mortgage Borrowers

A mortgage might be out of reach if tax liens keep you up at night. Lenders often slam the door shut the moment they spot unpaid IRS debt. But a tax settlement can flip the script.

This deal with the IRS lets you either pay back taxes over time or settle for less than what you owe. Before handing you the keys, mortgage lenders need proof that the tax issue is being handled.

That’s where the settlement plays a starring role. Finalizing the deal shows lenders the debt is under control. Completing, or at least starting, a tax settlement is one of the smartest moves anyone with IRS baggage can take before they apply for a mortgage.

How Tax Liens Affect Getting a Mortgage

What’s a Tax Lien?

A tax lien happens when you owe the government taxes and don’t pay. The government places a legal claim on your property, and this claim shows up in public records. This means that the IRS gets first dibs on the value of your property if you sell it.

Why Is This Important to Lenders?

• A tax lien signals that a borrower has unpaid bills and may be in financial trouble.
• Lenders know the IRS is first in line to collect if you don’t pay your mortgage.
• The tax lien can delay or even stop your mortgage closing if it is still open.

If you enter a proper tax settlement, many mortgage programs—including FHA, VA, Conventional, and even Non-QM loans—can still approve your loan.

Tax Settlement Options for Borrowers  

IRS Installment Plans  

Most borrowers use a monthly installment plan with the IRS to settle taxes. After the plan is active, lenders will usually approve a mortgage if:

• The borrower is up to date with payments.
• Required Documentation: Documentation is sent.
• The monthly installment is counted in the debt-to-income calculation.

Offer in Compromise (OIC)  

With an Offer in Compromise, taxpayers can settle for less than what they owe. Although acceptance is tough, the lien may be dropped once the deal is approved.

IRS Fresh Start Program  

The Fresh Start Program simplifies long-term installations and lien release. Taxpayers with resolved or settled debt can have easier mortgage approval using this program.

FHA Loans and Tax Liens

FHA Rules on Tax Liens

FHA lets you still qualify for a loan even with an IRS tax lien hanging over you, but a couple of key conditions must be met:

• There’s a signed repayment plan with the IRS.
• You’ve made at least three payments on that plan.
• The tax lien balance isn’t going to delay the loan closing.

The FHA’s Approach to Tax Agreements

The FHA works to help more people buy homes, so it accepts repayment agreements on tax debts as long as the borrower follows the plan. You don’t need to pay the lien in full to get the loan.

VA Loans and Tax Liens

VA Rules for Veterans with Tax Liens

Veterans can still get a VA home loan if they’re on an IRS repayment plan and making on-time payments. The VA does not insist that the entire tax lien be cleared to grant the loan.

Benefits of a Tax Payment Plan for Veterans

A solid tax settlement plan shows lenders that borrowers are handling their debts responsibly. This can help veterans prove their creditworthiness and make the loan approval process a bit easier, even with a past tax issue.

Conventional Loans and Existing IRS Debt

Requirements from Fannie Mae and Freddie Mac

To get a Conventional mortgage, you need:

• A repayment plan for the IRS in a write-up.
• Proof that you’re making the IRS payments right on schedule.
• The IRS payment is counted in your debt-to-income (DTI) ratio.

Conventional loans are tighter than FHA or VA loans. You’ll need a full year of on-time IRS payments before a lender will even look at your file.

Non-QM Loans for Buyers with Tax Liens  

Overview of Non-QM Loans  

Non-QM mortgages are for buyers who don’t fit the square boxes of traditional approvals.

Non-QM Advantages for IRS Liens  

• No, wait, once you’re in an IRS repayment plan.
• For information, you may only need bank statements, an asset draw-down schedule, or a debt-service coverage ratio (DSCR).
• You can get a loan even if you still owe the IRS or have just completed a ledger settlement.
• Self-employed people and property investors often find that a non-QM mortgage closes the loan door on homeownership the quickest when an IRS settlement clouds the landscape.

How to Get a Mortgage with an IRS Tax Debt  

• Work Out a Settlement or Payment Plan: Decide on an IRS repayment plan, Offer in Compromise plan, or Fresh Start plan, and get that paper stamped.
• Keep Counting on Time: Make those IRS installments and keep the lender happy with bank records that prove your consistency.
• Provide Documentation: Send your lender IRS transcripts or settlement agreements.
• Choose a Lender with No Overlays: Some banks have strict rules.
• However, mortgage brokers like Gustan Cho Associates specialize in tax lien approvals.
• Review Loan Options: Your credit profile and IRS situation may determine whether you qualify for FHA, VA, conventional, or non-QM programs.

Advantages of Settling a Tax Lien

• Reestablishes eligibility for a mortgage.
• Boosts your credit score.
• Stops IRS wage garnishment or property seizures.
• Gives you greater peace of mind while getting your loan.

Tax Settlement FAQs

Can I Purchase a Home if I Have a Tax Lien?  

• Many mortgage programs will approve you if you settle and show proof of payment.

How Many Payments Do I Have to Make For FHA to Approve?  

• You need three on-time payments in a row.

Will a Tax Settlement Erase The Lien From My Credit File?

• Not right away.
• The lien will stay until the IRS formally withdraws it or your settlement is completely paid.

Can I Refinance if I Have a Tax Lien?

• Yes, as long as you keep up with your IRS repayment plan.

Will Lenders Turn Me Down Because of IRS Debt?

• Most traditional banks might say no, but loans backed by the FHA and VA, and many non-QM programs usually approve if you provide proof of a tax settlement.

How Does Settling My Tax Bill Change My Debt-to-Income Ratio?

• Your monthly IRS payment gets added to the debt-to-income calculation.

Are Overdue Tax Liens Okay For VA Loans?

• Yes, as long as you are on a repayment plan and provide proof of on-time payments.

What If I Just Signed Up For a Repayment Plan?

• FHA loans may require three to 12 months of proof, while other programs have similar guidelines.

Could I Lower the Amount I Owe to The IRS?

• Yes, by filing an Offer in Compromise, although the IRS will look very closely at your income and assets.

What Will Help Me Get a Mortgage Quickly if I Owe the IRS?

• Enter a payment plan and partner with a lender who can process tax settlement files.

Tax liens don’t have to crush your dreams of buying a home. You can still get FHA, VA, or other loans with an organized IRS repayment plan. Just make sure to team up with a lender who knows the ins and outs of IRS deals and doesn’t have strict overlays.

At Gustan Cho Associates, we help home buyers with tax liens and challenging credit get approved when other lenders walk away.

Call 800-900-8569 or go to Gustan Cho Associates to kick off your mortgage journey with a flagship team that can make it happen.

Common Questions on Tax Settlement for Home Buyers with Liens

Can I Close on a Mortgage With an IRS Lien on My Record?

• Absolutely, as long as you are enrolled in a repayment plan and can document regular payments.
• FHA and VA loans are generally easier than standard mortgages in this situation.

How Many Months of IRS Payments Do I Need Before Applying For a Mortgage?

• Most mortgage lenders want to see at least three months of on-time IRS payments before they’ll say yes to your loan.

Do I Have To Pay Off My Tax Lien Completely?

• Not always. FHA and VA loans will let you keep a lien if you have a repayment plan.
• Conventional loans usually want you to pay it off fully before they’ll close.

What is an IRS Subordination Agreement?

• An IRS subordination agreement is when the IRS lets your new mortgage claim jump ahead of the tax lien.
• This way, you can close the loan and keep your house.

Can a Tax Settlement Improve My Credit Score?

• Yes. Your credit score can improve once you start a repayment plan or settle the tax bill.

Will a Tax Lien Stop Me From Refinancing?

• Not if you have a plan. Refinancing can still happen if you’re on a repayment plan and meet the lender’s criteria.

Do Non-QM Lenders Accept Tax Liens?

• Many non-QM lenders will work with borrowers with active tax liens, including those with repayment plans or who settled for less.

How Long Does an IRS Lien Stay On My Record?

• A federal tax lien can stay on your report for up to 10 years, unless you pay it off or settle it through a program.

Can I Get Down Payment Help if I Have a Tax Lien?

• Most down payment help programs want clean tax records.
• That means you’ll likely have to clear the lien before you can qualify.

Should I See a Tax Pro Before Applying For a Mortgage?

• Absolutely.
• A tax pro can help you settle tax debts and keep your records in line. This can make it easier to get mortgage approval.

Final Takeaway

Tax settlements help borrowers with tax liens who want to get a mortgage. Options like repayment plans, offers in compromise, and subordination agreements can clear the path. At Gustan Cho Associates, we team up with lenders who get real-world problems and have no lender overlays. That means we can help you become a homeowner—even if you have tax challenges.

Agency Guidelines Versus Lender Overlays

FHA credit score requirements and other FHA Guidelines. Gustan Cho Associates has no minimum credit score requirements on VA loans. We have no debt to income ratio requirements on VA loans.

Borrowers under 580 credit scores can qualify for FHA Loans with a 10% down payment. Need 580 credit scores for 3.5% down payment FHA loans. Outstanding collections and charged-off accounts do not have to be paid.

Whatever the automated findings are, we just go off DU AUS findings. No additional overlays besides agency guidelines. Gustan Cho Associates also offers non-QM loans and other alternative financing loan programs. Call us at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com.