March 7, 2017
Are unpaid back taxes a liability when it comes time to applying for an FHA mortgage or refinance loan? A reader asks, “I am currently paying back taxes on a payment plan but have filed all appropriate tax returns. Is the rule that your taxes must be paid in full prior to applying for an FHA loan or they just have to be filed? In other words, am I still eligible while paying back taxes owed?”
FHA loan rules in HUD 4000.1 do address the back taxes issue, primarily from the standpoint of the loan applicant who has delinquent federal tax debt. That is not to imply that the reader asking this particular question is in that category, but rather to point out that FHA loan rules address the issue from that standpoint.
In HUD 4000.1, we learn the following:
“Mortgagees are prohibited from processing an application for an FHA-insured Mortgage for Borrowers with delinquent federal non-tax debt, including deficiencies and other debt associated with past FHA-insured Mortgages. Mortgagees are required to determine whether the Borrowers have delinquent federal non-tax debt. Mortgagees may obtain information on delinquent Federal Debts from public records, credit reports or equivalent, and must check all Borrowers against the Credit Alert Verification Reporting System (CAIVRS).”
We also learn what the FHA loan rules are for borrowers who have unpaid, but not delinquent, federal tax issues. A borrower with a tax lien, for example, will need to know the following from HUD 4000.1.
“Tax liens may remain unpaid if the Borrower has entered into a valid repayment agreement with the federal agency owed to make regular payments on the debt and the Borrower has made timely payments for at least three months of scheduled payments. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments.”
So FHA loan rules DO make provisions for an otherwise financially qualified borrower affected by these issues. Borrowers with repayment agreements should expect to provide supporting documentation (your lender will tell you what your financial institution will require in cases like these) that shows not only the payment arrangements made, but also the record of repayment.
Borrowers should also expect additional lender standards to apply, as they often do. State law and other ordinances may also affect transactions like these depending on circumstances.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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