A reader asks, “I entered into an electronic direct withdrawal from my checking account repayment plan with with IRS for tax underpayment…after meeting with IRS, payment agreement request was approved. After the agreement was approved IRS filed a lien on the owed amount. I am not currently not a property owner, but I would like to buy a home in the next year.”
“However the tax lien caused my credit score to drop to 649. I currently earn $92,000.00 from retirement income, and $40,000.00 from employment income. debt ration is where it should be. My question is can I ever qualify for FHA home loan, if the lien is not paid? Or (does) the lien (have) to be paid in full, along with a paid document submitted to all credit bureaus?”
FHA loan rules in HUD 4000.1 page 131 cover this issue, stating that there’s a major difference in how delinquent federal tax debts are viewed compared to those where the borrower has entered into a repayment agreement.
According to that section of the FHA loan rule book, “Borrowers with delinquent Federal Tax Debt are ineligible. 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.”
Such payment agreements can and do count toward the borrower’s debt to income ratio (DTI): “The Mortgagee must include the payment amount in the agreement in the calculation of the Borrowers Debt-to-Income (DTI) ratio.”
Additionally, “The Mortgagee must include documentation from the IRS evidencing the repayment agreement and verification of payments made, if applicable.” So documentation will be required to show the agreement has been made.
There are no exceptions made for the three months of payment requirement, borrowers would need to wait to apply for the mortgage loan until they can show the minimum required payments have been made.
The FICO score issue raised in the reader question is important; borrowers should know that while FHA mortgage loan standards permit FICO scores as low as 580 for maximum financing, many lenders will require higher FICO scores. These scores are often in a range between 620 and 640.
Potential FHA borrowers in situations like these should consider contacting the FHA directly at their toll free number, 1-800 CALL FHA, to request a referral to a local, HUD-approved housing counselor who may be able to offer pre-purchase planning advice including how to re-establish good credit in the wake of a financial problem or “economic event”. Pre-purchase counseling has helped many to better understand what it takes to qualify for an FHA mortgage loan and prepare for the application.
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