Can You Get a Mortgage if You Owe Federal Tax Debt to The IRS

Owning a home is a dream for many individuals and families, but the process of securing a mortgage can be challenging, especially when you have a federal tax debt. The presence of outstanding tax liabilities can complicate the mortgage approval process, but does it make it impossible? 


In this blog post, we will explore whether you can get a mortgage if you owe a federal tax debt to the IRS and discuss various factors that may affect your ability to secure a home loan.



Mortgage Lenders And Federal Tax Debt

When you apply for a mortgage, lenders take various factors into account to assess your creditworthiness, such as your credit score, income, and debt-to-income (DTI) ratio. One crucial aspect that lenders consider is your tax repayment history. If you have outstanding federal tax debt, it may raise red flags for potential lenders, making it more difficult for you to secure a mortgage. 


Before you start the mortgage application process, it’s essential to check your tax repayment history and determine if there are any outstanding tax debts that may hinder your chances of obtaining a mortgage – check out this site for help.


Impact Of Tax Liens On Mortgage Eligibility

The presence of a federal tax lien on your credit report can significantly impact your ability to secure a mortgage. A tax lien is a public record that the IRS files when you fail to pay your tax debt, giving them a legal claim to your property. Tax liens can negatively affect your credit score and remain on your credit report for up to ten years, even after the debt has been paid.


Mortgage lenders typically view tax liens as a sign of financial irresponsibility, and as a result, they may be hesitant to approve your mortgage application. To improve your chances of securing a mortgage, it’s crucial to address any outstanding tax liens and work towards resolving them before applying for a home loan.


Negotiating A Payment Plan With The IRS


Image source- Pexels 

If you owe federal tax debt, one option to improve your mortgage eligibility is to negotiate a payment plan with the IRS. By entering into an installment agreement, you can demonstrate to mortgage lenders that you are actively addressing your tax debt and taking responsibility for your financial obligations.


Lenders may be more willing to approve your mortgage application if you can show that you have a payment plan in place and are making consistent, timely payments. It’s essential to keep in mind that while an installment agreement may improve your chances of securing a mortgage, it may not guarantee approval, as lenders will still consider other factors such as your credit score, income, and DTI ratio.


Offer In Compromise (OIC) And Mortgage Approval

Another option for resolving your federal tax debt is submitting an Offer in Compromise (OIC) to the IRS. An OIC allows you to settle your tax debt for less than the full amount owed if you can demonstrate financial hardship. If the IRS accepts your OIC and you successfully pay the agreed-upon amount, your tax debt will be considered resolved.


Having an accepted OIC can improve your chances of securing a mortgage, as it demonstrates that you have taken steps to address your tax debt. 


However, it’s important to note that the presence of an accepted OIC on your credit report may still raise concerns for mortgage lenders, who may require additional documentation or assurances before approving your application.


Working With A Mortgage Professional

If you owe federal tax debt and are concerned about your ability to secure a mortgage, consider working with a mortgage professional or a financial advisor. They can help you understand the impact of your tax debt on your mortgage eligibility and guide you through the process of addressing your tax liabilities.


A mortgage professional can also help you explore alternative mortgage options that may be more accommodating to individuals with tax debt, such as non-traditional or government-backed loans. By working with an expert, you can develop a plan to improve your financial situation and increase your chances of securing a mortgage.


In Conclusion

While having outstanding federal tax debt can complicate the mortgage application process, it does not necessarily make it impossible to secure a home loan. By taking proactive steps to address your tax liabilities, such as negotiating a payment plan with the IRS, submitting an Offer in Compromise, or resolving tax liens, you can improve your chances of mortgage approval.