How Home Buyers Can Qualify For Mortgage With Tax Lien

This BLOG On How Home Buyers Can Qualify For Mortgage With Tax Lien Was Updated On May 12, 2017

Having a tax lien on credit record is probably one of the worst hurdles a home buyer can have when it comes to applying for a mortgage.

  • Tax liens and judgments are two of the worst types of derogatory accounts consumers can have on their credit reports.
  • The tax liens normally cannot be discharged in a bankruptcy and has no statute of limitations.

Home buyers can qualify for mortgage with tax lien if they do the following:  

  • First option is to pay off the tax lien during or at closing of the home loan.
  • Need to show proof that borrower has seasoned funds to pay the outstanding taxes to release and record the tax lien.
  • Second option is to negotiate with the IRS an Offer in Compromise and do a final settlement. 
  • An IRS Offer In Compromise is an offer from the IRS on a reduced amount to be paid by the taxpayer to settle the outstanding tax obligations.
  • Third option is written payment agreement with the IRS.
  • Home buyers can qualify for mortgage with tax lien if they have a written payment agreement with the Internal Revenue Service.
  • Borrower needs at least three month payment history to the IRS.
  • Borrower needs to provide three month’s worth of canceled checks or three months bank statements.

How Do Mortgage Underwriters View Tax Liens?

Borrowers can qualify for mortgage with tax lien under the following circumstances:

  • Have the back taxes paid prior to or at closing and have the title agent record the tax lien release.
  • Have a written payment agreement with the IRS and have three months of payment seasoning.
  • Most lenders are not too fond of financing a borrower with a tax lien and can have lender overlays where they will not approve a borrower with a tax lien until the lien has been paid and recorded.
  • We have no issues with borrowers with a tax lien if the borrower has set up a written payment arrangement plan with the IRS and has been timely with the agreed payment plan for at least a period of three consecutive months.
  • Verification of at least three months payment seasoning is done by three month’s canceled checks and/or bank statements.

Tips On How To Qualify For Mortgage With Tax Lien

When shopping for a lender, make sure the lender has no lender overlays with tax liens and other derogatory credit. Lender overlays are mortgage requirements that is above and beyond the mortgage guidelines of FHA, VA, USDA, Fannie Mae, Freddie Mac. Lenders only need to meet the minimum mortgage guidelines BUT CAN ALSO have higher lending standards which are call overlays.

Typical Lender Overlays On Tax Liens

Here are typical mortgage lender overlays from mortgage lenders who have overlays on tax liens:

  • Lenders with overlays on tax liens may require mortgage applicants to have the tax lien paid off prior to application
  • Other lenders with overlays on tax liens may require tax liens paid off and have their own waiting period requirement after the paid off date of tax liens. For example, if the tax lien was paid off today, a lender may have overlays stating that the mortgage applicant cannot qualify with them for at least the paid tax lien has been seasoned for a year
  • Most banks probably will have overlays on qualifying for mortgage with tax lien
  • Borrowers who need to qualify for mortgage with tax lien should consult with a mortgage lender with no overlays
  • The Gustan Cho Team specializes in government and conventional loans with no lender overlays

Loan Programs For Mortgage With Tax Lien

There are various types of loan programs that will benefit home loan applicants qualify for mortgage with tax lien. The best loan program for mortgage applicants with tax liens and other derogatory credit are FHA Loans. HUD, the parent of FHA, has created the HUD 4000.1 FHA Handbook which lists all of the HUD Guidelines to qualify for FHA Loans. Home buyers with bad credit can qualify for FHA Loans with little down payment, less than perfect credit, and higher debt to income ratios.

Home buyers who are having trouble qualifying for FHA Loans due to lender overlays, please contact The Gustan Cho Team at 800-900-8569 or text Gustan at 262-716-8151 for faster response or email us at gcho@gustancho.com. We are known nationally for its no lender overlays on government and conventional loans. The Gustan Cho Team also offers NON-QM Loans and Alternative Lending Programs where there is no waiting period after bankruptcy and/or foreclosure to qualify for mortgage.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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