A woman looks online to check if she will owe taxes and if that will impact her ability to obtain mortgages for future home purchases.

Securing a mortgage can be a daunting journey, especially if you find yourself in the unique position of owing taxes. Many potential homeowners worry that their tax liabilities might stand in the way of achieving their dream of homeownership. However, the situation may not be as bleak as it seems.

Owing Taxes: Bad News & Good News

I recently blogged about why borrowers should sometimes file extensions instead of tax returns and briefly touched on whether or not borrowers can obtain mortgages if they owe taxes.

This blog expands on that topic, as many borrowers have substantial tax liabilities that can threaten their ability to qualify.

The bad news is that many borrowers have limited funds for down payments, closing costs and/or reserves and paying large tax liabilities can seriously deplete necessary funds.

In addition, most competitive jumbo lenders require all taxes owed to be paid prior to close of escrow.

The good news is that FHA, Fannie Mae and Freddie Mac will allow borrowers to obtain mortgages even if they owe taxes, but only under certain circumstances.


FHA allows borrowers to obtain FHA financing even if they owe Federal income taxes.

Payment Plan: The borrowers need to set up a payment plan with the IRS, and they need to make at least three timely payments prior to close. They cannot prepay the three payments. Payment plans can be set up for any taxes owed, even for recent 2020 returns.

Tax Liens: FHA will even allow borrowers to close with a tax lien (usually filed when taxes have been owed for several years) if there is an installment agreement and IF the IRS will subordinate to the FHA loan. We have never seen this, but the internet says it can be done. 😊

Conforming (Fannie & Freddie)

Fannie and Freddie also allow borrowers to obtain mortgage financing when they owe Federal income taxes.

Payment Plan: Similar to FHA, borrowers need to set up a payment plan with the IRS. But Fannie and Freddie only require borrowers to be “current;” they do not require a three-month payment history.

No Tax Liens: Fannie and Freddie will not allow borrowers to obtain mortgage financing if they have a tax lien.

Debt Ratios: The IRS payment plan needs to be disclosed to the lender and the payments will impact debt ratios.


There are no consistent rules for jumbo lenders, but most will not allow borrowers to obtain mortgage financing if income taxes are owed.

Borrowers need to check with their specific lender for guidelines.

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