Mortgage Guidelines with Unpaid Taxes to the IRS

Mortgage Guidelines with Unpaid Taxes: Qualifying for a Home Loan

Are you worried about unpaid taxes standing in the way of your dream home? The good news is that you can still qualify for a mortgage—even if you owe money to the IRS. John Strange, a senior mortgage loan originator at Gustan Cho Associates and an associate contributing editor at GCA Forums says the following about mortgage guidelines with unpaid taxes:

Learn how unpaid IRS taxes and tax liens can affect approval for FHA and conventional mortgage loans. IRS debt does not automatically disqualify applicants.

Approval depends on factors such as payment plan status, tax liens, property location, and loan type. However, the rules for mortgage guidelines with unpaid taxes depend on the type of loan you’re applying for, like FHA or Conventional loans. In the following paragraphs, we will cover mortgage guidelines with unpaid taxes.

The Impact of Owing IRS Taxes on Mortgage Eligibility

In this guide, we’ll break down how unpaid taxes affect your mortgage application, what to do if you have unfiled taxes, and how to work with the IRS to improve your chances of home loan approval—looking to buy a home or refinance? This guide will help you through the process easily.

Key Considerations for Mortgages When Owing IRS Taxes

If you owe federal taxes, you typically cannot get an FHA loan unless you pay off the debt completely. However, if you have a tax lien, you might still qualify by starting a repayment plan and making at least three on-time monthly payments before you apply. Only your most recent payments matter, and your repayment plan will be factored into your debt-to-income ratio.

Buying a Home with IRS Tax Debt

If you do not have a tax lien, Fannie Mae may accept an IRS-approved or pending installment payment plan for a conventional loan. Your lender will need to verify and document your payment plan or application, and your scheduled payment will count toward your total monthly debt.

If there is a federal tax lien in the same county as your property, you must pay all outstanding federal taxes before you can close on your loan.

Setting up an IRS payment plan can help your chances, but approval also depends on title reviews, lien priorities, your payment history, your debt-to-income ratio, and your lender’s specific rules. Sometimes the IRS may allow another creditor to take priority over its lien, but this process is complicated, and the IRS lien will still exist. Always talk to your lender, title company, and a tax professional before making any decisions.

Is it Possible to Get a Mortgage with Unpaid Taxes?

Yes, getting a mortgage is possible even if you have unpaid taxes. But lenders want to know you’re responsible for paying off your debt. If you owe back taxes to the IRS, the lender will determine whether you have a payment plan, how much you owe, and how you manage your finances. Let’s dive into the two most common loan options:

FHA Loans:

• FHA loans, which are supported by the Federal Housing Administration (FHA), offer greater flexibility regarding outstanding taxes.
• You can have unpaid federal taxes and even tax liens if you have a written payment plan with the IRS.

Conventional Loans:

• For loans backed by Fannie Mae or Freddie Mac, unpaid taxes without a tax lien are acceptable as long as you’re on a payment plan and you’ve made your first payment before closing.
• However, you won’t qualify for a conventional loan if you have a tax lien.

How to Qualify for an FHA Loan with Unpaid Taxes

FHA loans assist borrowers with imperfect financial histories, including those with outstanding tax debts. But you’ll need to follow a few specific steps to qualify for a mortgage:

Set Up a Payment Plan with the IRS:

• If you owe taxes, the FHA allows you to qualify for a loan as long as you have a written agreement with the IRS.
• This agreement shows the lender that you’re handling the situation responsibly.

Make at Least Three Payments:

• Before you can close on an FHA loan, you need to have made three consecutive payments on your IRS payment plan.
• Remember that these payments cannot be lump-sum payments made all at once—they must be made over three months.

Subordinate the Tax Lien:

• If you have a tax lien, the IRS will need to subordinate it, meaning they agree that your mortgage takes priority over the tax debt.
• This allows you to close on the mortgage without interfering with the tax lien.

If you work with the IRS early, you may still be eligible for FHA loans even if you have unpaid taxes or a tax lien. FHA loans are a good choice for people who have had financial difficulties in the past.

Market Liquidity by Selling Loans Funded After Closing

Lenders will use their warehouse line of credit to fund closed loans. However, they need to pay down the warehouse line of credit in order to originate and fund more loans and make money. Dale Elenteny, the operations manager at Gustan Cho Associates and a senior mortgage loan originator says the following:

Fannie Mae and Freddie Mac allow borrowers on a written payment plan with the IRS on a federal tax debt due on conventional loans. You have to have made one payment. There is no seasoning requirement. However, Fannie Mae and Freddie Mac do not allow federal tax liens where HUD does allow on FHA loans.

Fannie Mae and Freddie Mac are the two largest buyers of mortgages on the secondary market. Due to Fannie Mae and Freddie Mac buying mortgages on the secondary market, it provides liquidity to lenders to originate and fund more loans. The role of Fannie Mae and Freddie Mac is to provide liquidity in the mortgage and housing markets.

Qualifying for a Conventional Loan with Unpaid Taxes

Conventional loans are stricter when it comes to unpaid taxes. Here’s what you need to know if you’re applying for a Conventional loan and owe back taxes:

Fannie Mae and Freddie Mac Does Not Allow Tax Liens on Conventional Loans:

• Conventional loans supported by Fannie Mae or Freddie Mac do not permit borrowers with current tax liens to be eligible, unlike FHA loans.
• Before applying for a conventional loan, you must address any tax lien.

Payment Plan Required: 

• If you owe back taxes but don’t have a lien, you can still qualify as long as you set up a written payment agreement with the IRS.
• You’ll need to make at least your first payment on the plan before closing on your loan.

Debt-to-Income Ratio:

• Your monthly payments to the IRS will be factored into your debt-to-income ratio (DTI). Lenders typically prefer a DTI ratio below 43%, so making sure your payments to the IRS won’t push you above that limit is important.

Conventional loans can offer better interest rates and lower down payments. Still, they also come with stricter rules when it comes to unpaid taxes.

What About Unfiled Taxes? Can You Still Get a Mortgage?

Unfiled taxes can be a bigger issue than unpaid taxes. Lenders usually require your tax returns for the last two years to verify your income. If you haven’t filed your taxes, here’s what you need to know:

FHA Loans:

• HUD, the parent of FHA could assist you even if you have outstanding taxes, but this is contingent on establishing a payment plan with the IRS and demonstrating efforts to address the situation.
• Additionally, you must furnish supplementary documentation to validate your income.
• These documents include bank statements, pay stubs, or self-employment profit and loss statements.

Conventional Loans: 

• Conventional loans are less forgiving when it comes to unfiled taxes.
• You may still be able to qualify if you show alternative proof of income, but lenders will check your financial situation closely.

How Do Lenders Know You Owe Taxes?

Lenders Can Find Out About Your Unpaid Taxes in Several Ways:

Credit Reports:

• If you have a tax lien, it will show up on your credit report.
• Lenders check credit reports to see if there are any red flags, like unpaid debts or liens.

Tax Transcripts:

• Many lenders ask for IRS tax transcripts as part of the mortgage application process.
• These documents show whether you’ve filed your taxes and if you owe any money.

Public Records:

• Tax liens are considered public records.
• Lenders often check public records to see if there are any liens or judgments filed against you.
• If you owe taxes, it’s best to be upfront about your situation with the lender.
• Hiding unpaid taxes will only make things harder later in the process.

Does an IRS Payment Plan Affect Your Mortgage Application?

Yes, an IRS payment plan can affect your mortgage approval, but it doesn’t mean you’re automatically disqualified. Lenders consider several factors:

FHA Loans: 

• HUD guidelines are more lenient when it comes to IRS payment plans.
• The FHA will likely approve your loan if you can prove you’re making timely payments.

Conventional Loans:

• Conventional loans have stricter requirements. Lenders will assess how your IRS payment plan impacts your debt-to-income ratio and the timeliness of your payments.
• Approval can be more challenging if late payments affect your credit score.

What Happens If You Have a Tax Lien?

A tax lien is more serious than simply owing back taxes. It means the IRS has legally claimed part of your property as collateral for unpaid taxes. If you have a tax lien, here’s how it affects your mortgage application:

FHA Loans:

• You can still qualify for an FHA loan even if you have a tax lien, as long as you have a payment plan in place and the IRS subordinates the lien.

Conventional Loans:

• You cannot qualify for a conventional loan with a tax lien.
• You must resolve the lien before applying for the loan.
• If you have a tax lien, the best thing you can do is work with the IRS to either pay off the debt or set up a payment plan.

Tips for Getting a Mortgage with Unpaid Taxes

Here are some key strategies to improve your chances of getting approved for a mortgage when you owe taxes:

Set Up a Payment Plan:

• If you owe taxes, start by arranging a payment plan with the IRS.
• Most lenders will want to see that you’re taking action to resolve your debt.

Make Payments on Time:

• It’s important to make your tax payments on time, whether you owe taxes or have an IRS payment plan.
• Late or missed payments can lower your credit score and reduce your chances of getting mortgage approval.

Communicate with Your Lender:

• Be open about your tax situation with your lender.
• They might have options or suggestions to help you navigate the process, especially if you’re applying for an FHA loan.

Provide Alternative Documentation:

• If you have unfiled taxes, you’ll need to provide other forms of income verification, like bank statements, pay stubs, or profit and loss statements.

Ready to Buy or Refinance with Unpaid Taxes? We Can Help!

At Gustan Cho Associates, we specialize in helping borrowers with complex financial situations, including unpaid taxes. Whether you’re looking to buy your first home or refinance, we’re here to guide you every step of the way. Have questions? Contact us today at 800-900-8569 or email gcho@gustancho.com to see how we can help you get approved for a mortgage, even if you owe back taxes!

Frequently Asked Questions About Mortgage Guidelines with Unpaid Taxes

This Guide About “Mortgage Guidelines with Unpaid Taxes to the IRS” Was Updated on July 3, 2026.