If You Owe Income Taxes, Can You Get a Mortgage? Yes!

Income Taxes Owed

Income tax liabilities are a frequent issue during tax season, and worthy of addressing again.

Borrowers can get mortgage financing if they owe income taxes, in most cases.

This is important because borrowers often have limited funds for a down payment and cannot afford to pay their taxes without depleting those funds.

FHA

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 2017 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.

Jumbo

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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Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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