This ARTICLE On Tax-Lien Mortgage Guidelines On Government And Conventional Loans Was PUBLISHED On February 26th, 2020

What are the guidelines for tax mortgages on government and conventional loans

As thousands of Americans prepared to file their 2019 income taxes, we are writing a reminder blog on the tax lien guidelines for the various mortgage products we offer.

Gustan Cho Associates specialize in FHA, VA, and Conventional mortgage lending without LENDER OVERLAYS
Many lenders have additional requirements when it comes to tax liens
In this blog, we will go over how tax liens will affect your mortgage qualifications and what steps to take to buy a home when you have a tax lien

In this ARTICLE, we will discuss and cover Tax-Lien Mortgage Guidelines On Government And Conventional Loans.

How Tax-Lien Mortgage Guidelines Affects Borrowers From Qualifying For A Mortgage

What is a tax lien?

A tax lien could be many different things but for this article, it is when you owe the IRS money from federal income tax deficiencies
Technically a tax lien is a legal claim filed against an individual who fails to pay their taxes on time
The lien is a legal guarantee of payment and if not paid, the IRS may proceed to seize assets from an individual to get repayment

If you are late on your federal or state taxes, the government can put a tax lien against your name. This lien for non-payment can affect your mortgage qualifications.

How To Work With The IRS

If a taxpayer does not respond to the IRS within 90 days of them sending out a back due to tax letter, they assume you are on the hook for that money and will start collecting.

No response from you is an admittance of guilt and you agree with their numbers
I have heard horror stories where the IRS has not sent the notice to a client’s new address and they may have not received the notice
Since they did not respond within 90 days, the IRS will proceed to collect those funds
At that point, the tax lien is attached to their social security number if they do not own property
The IRS will do everything they can to collect back due taxes such as keep your following year tax refund to pay down the outstanding balance

The lien may be removed if the taxpayer enters into a payment plan agreement. If no attempt of repayment is made, the government may seize assets and sell those assets to recover back do taxes.

Government And Conforming Mortgage Guidelines On Tax-Liens

What are governmental and compliant with the guidelines on tax lien mortgages

Back due taxes can affect your mortgage qualifications. Below we will break down tax lien guidelines by each agency.

CONVENTIONAL:

A conventional mortgage is the best option if you have a federal tax lien
The tax lien does not need to be paid in full to enter into a conventional mortgage
You simply need to set up a repayment agreement with the IRS
You will need to send the official IRS installment agreement and proof that you have made at least one payment before closing

Conventional loan products give you the opportunity to set up a payment plan and make a payment in a reasonable time frame. So quickly it usually will not affect your closing date.

FHA:

The Federal Housing Administration or FHA has slightly different guidelines surrounding tax liens
FHA loans will always check the CAIVRS LIST to make sure a borrower is not behind on any federal debt, including back taxes

If you show up as delinquent on federal taxes, you will not be eligible for FHA financing until:

The delinquent account is brought current and/or paid in full; or
You enter into a repayment plan agreed on by the IRS
The IRS must also agree to subordinate the tax lien into the second position on your title

Please call Mike Gracz on 630-659-7644 for more information on subordination.

Note:

To be eligible for FHA financing, a borrower must set up a payment agreement and make a minimum of three-monthly payments before being able to qualify
The monthly payment will be factored into your debt to income ratio
You may not make three payments at once; the underwriter needs to verify you are able to make “timely” payments to the federal tax debt
Once you set up your agreement, make your first payment as soon as possible, make your second payment 30 days after that, and third payment 30 days later
This will allow you to make the three payments in as little as 61 days

Mortgage Guidelines On VA Loans

VA:

Believe it or not, VA guidelines have some of the toughest restrictions when it comes to federal tax liens
If you have a federal tax lien, you must verify 12 on-time payments have been made to your repayment plan before qualifying for a VA mortgage
The VA needs to verify you are able to make payments for a full year before entering into a VA-backed mortgage

The only way around this is to pay the tax lien in full.

Qualifying For A Mortgage With A Tax-Lien

What if you already own a home and get a tax lien?

If you already own a home, the information above will not relate to you
However, if you are a property owner and you get a tax lien, the IRS will attach this lien to your property
If there is a federal tax lien attached to your property, the lien must be satisfied when you can sell or refinance the home
This puts thousands of Americans in a bind every single year
There are a number of options to satisfy a tax lien
If you have enough equity to cover the tax lien, you may pay it in full when you sell or refinance the property
If there is not enough equity to cover the tax lien, you can request the IRS to discharge the lien and allow the completion of the sale

The IRS may still come after you for the remaining balance.

Owing Money To The Internal Revenue Service

What does it mean by owing money to the internal tax service?

Owing to the IRS money can be incredibly stressful.

It is important to understand that they have the ability to collect back taxes through wage garnishment
In my opinion, running from the IRS is not an option
You will need to contact them and set up a payment agreement
Many times, you can settle for less than what you really owe, contact a tax professional for more advice on this topic
The federal debt may not be discharged through bankruptcy
It is best to set up an agreement and get the IRS out of your life
You may be able to negotiate a lower amount due; we suggest contacting an attorney to help you with this process

Gustan Cho Associates are experts in mortgage lending and Tax-Lien Mortgage Guidelines. As you can see from our reviews, we come across some pretty unique situations. We have seen tax liens well over $1 million from our past clients and were still able to help them buy a home. There are very few situations we have not come across before, and we have the ability to lend without lender overlays. For any general mortgage questions, please call Mike at 630-659-7644. Mike is also accessible via email at [email protected].