Do Tax Liens Affect FHA Loan Applications?
July 6, 2015
There’s a question that comes up from time to time from borrowers who may owe federal taxes and want to apply for an FHA loan. Does the simple fact that a borrower has a tax lien exclude them from applying for an FHA home loan?
It’s an important question, the answer to which might surprise you. Depending on circumstances, having unpaid back taxes might not be the stumbling block to an FHA loan that some assume is automatically there. Much depends on the nature of your tax debt and where you are currently with the repayment of that debt.
It is true that FHA loan rules do not permit borrowers who are delinquent on federal debts to apply for an FHA home loan until that delinquency has been addressed. But what about situations where there is no delinquency, but the federal debt still exists? If a borrower has entered into a repayment plan with the government, what is the FHA’s position on that?
FHA loan rules that govern the tax lien issue can be found in HUD 4155.1, Chapter Four, Section A. The lender is required to check public records and other data to see if the applicant is delinquent on a federal debt.
In cases where the borrower is delinquent, an FHA mortgage is not possible until “the delinquent account is brought current, paid, or otherwise satisfied, or a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.”
As you can see, Chapter Four does provide a means for the borrower to move ahead with the FHA loan application process, provided there is proof in writing of the repayment plan.
FHA loan rules in this area add that a tax lien may, “remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.”
In these cases, lender participation is required--but the lender is not required to automatically approve a borrower for an FHA loan in these circumstances. These rules simply let lenders know what is permitted under the FHA loan program.
Not all lenders may be willing to work with a borrower who has delinquent taxes (much would depend on how much and the circumstances of the loan); borrowers should shop around for a financial institution that will work with the circumstances in question. Of course, much depends on FICO scores and other financial qualifications in addition to what has been mentioned here.
It’s an important question, the answer to which might surprise you. Depending on circumstances, having unpaid back taxes might not be the stumbling block to an FHA loan that some assume is automatically there. Much depends on the nature of your tax debt and where you are currently with the repayment of that debt.
It is true that FHA loan rules do not permit borrowers who are delinquent on federal debts to apply for an FHA home loan until that delinquency has been addressed. But what about situations where there is no delinquency, but the federal debt still exists? If a borrower has entered into a repayment plan with the government, what is the FHA’s position on that?
FHA loan rules that govern the tax lien issue can be found in HUD 4155.1, Chapter Four, Section A. The lender is required to check public records and other data to see if the applicant is delinquent on a federal debt.
In cases where the borrower is delinquent, an FHA mortgage is not possible until “the delinquent account is brought current, paid, or otherwise satisfied, or a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.”
As you can see, Chapter Four does provide a means for the borrower to move ahead with the FHA loan application process, provided there is proof in writing of the repayment plan.
FHA loan rules in this area add that a tax lien may, “remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.”
In these cases, lender participation is required--but the lender is not required to automatically approve a borrower for an FHA loan in these circumstances. These rules simply let lenders know what is permitted under the FHA loan program.
Not all lenders may be willing to work with a borrower who has delinquent taxes (much would depend on how much and the circumstances of the loan); borrowers should shop around for a financial institution that will work with the circumstances in question. Of course, much depends on FICO scores and other financial qualifications in addition to what has been mentioned here.
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