It may be possible to get a home loan with tax debt, but it can also make the process more difficult. The exact requirements you’ll need to meet will depend on the type of loan you’re seeking and your specific financial circumstances.
Getting Your Tax Debt Under Control
If you can’t pay off your tax debt before applying for a mortgage, you may need to show that your debt is under control. One way to do this is to enter into an installment agreement and make monthly payments.
Your tax debt will still exist, but you’ll be paying it off over time. Your monthly tax debt payments will be included in the debt-to-income calculation, so you’ll need to meet the lender’s requirements even with your IRS installment agreement payments.
However, you may still have to deal with issues if a Notice of Federal Tax Lien has been filed against your property.
Federal Tax Lien
The IRS will only withdraw the Notice of Federal Tax Lien if your full balance is paid off or if you enter into certain installment agreements. The installment agreement must meet the following criteria to qualify for the lien withdrawal:
- You owe $25,000 or less
- It is a Direct Debit Installment Agreement
- Your full balance will be paid within 60 months or before the collections statute expires
- You have made three consecutive direct debit payments
- You are in full tax compliance and haven’t defaulted on any prior Direct Debit installment agreements
You can request to have the lien withdrawn once these requirements are met. Some lenders may consider your loan application with the lien in place if you have made arrangements to pay off your tax debt, such as an installment agreement.
For a loan refinance, you’ll typically need to request a tax lien subordination. This allows the mortgage lender to maintain their priority over the IRS lien after the refinance is completed.
You’ll have to request the lien subordination, and the IRS will only grant it if you give them a good reason. If you have other valuable property subject to the IRS lien or if you pay the IRS an amount equal to their lien interest on your home, they may agree to the lien subordination.
Talk to a tax attorney for help managing your tax debt while you attempt to get approved for a home loan.
Contact The Gartzman Law Firm to speak with an Atlanta tax attorney about your case. Request your consultation by calling (770) 939-7710.