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Not all borrowers come to the FHA loan or refinance loan process with the same types of credit history, FICO scores, or other financial qualifications. Some come with past financial judgments, some come with a bankruptcy or foreclosure in the past, and still others may be applying for an FHA mortgage with a tax lien on their credit record.

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Tax Liens and FHA Loan Approval

Tax Liens and FHA Loan Approval
July 27, 2016 - There are many questions about FHA home loans and refinance loans. Not all borrowers come to the FHA loan or refinance loan process with the same types of credit history, FICO scores, or other financial qualifications. Some come with past financial judgments, some come with a bankruptcy or foreclosure in the past, and still others may be applying for an FHA mortgage with a tax lien on their credit record.

Borrowers with tax liens may have unique circumstances; if a borrower has, for example, a tax lien that was paid off and released, what is required to get loan approval assuming the borrower is otherwise financially qualified? What about borrowers who have property tax liens that are not yet fully satisfied?

For the latter question, FHA loan rules require the borrower to have entered into a repayment plan that is satisfactory to the lien holder. Paying off the lien in full may not be required depending on circumstances.

For those who have already paid off their liens prior to FHA mortgage loan application time, it is very important to have documentation of the paid-off lien for the lender to review. Without documentation, the lender cannot assume the lien has been paid to the satisfaction of the creditor. It’s not possible for the lender to take the borrower’s word for it, written documentation must be provided.

And it’s not just FHA loan rules which must be satisfied in this area; every financial institution has different standards, rules, and regulations. What may be acceptable at one lender may not be permitted at another depending on circumstances and the rules at that institution.
There may be varying standards or requirements, especially in cases where there is “derogatory credit information” on a credit report. Will the lender require the borrower to get some kind of proof from the IRS as mentioned in the question? That may depend greatly on the nature of the lien in addition to the lender’s requirements.

Home loan experts recommend taking 12 months or more to prepare for a loan application. It takes time to check your credit reports, request documentation, even pay off certain types of debt that might hurt your application when the time comes. And you may need sufficient time to request and receive documentation such as what’s required for a tax lien situation.

A borrower with a tax lien that is still owed, for example, may need time to make satisfactory payment arrangements and begin making those payments in accordance with the agreement. It can also take time for the documentation of those satisfactory payments to be made available to the borrower and the lender.

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