Can I get an FHA home loan if I owe back taxes? The answer to this question depends on more than one factor, the most important being whether or not the borrower is delinquent on the taxes owed.
In general, borrowers who come to the home loan process with delinquent accounts will find it difficult to get loan approval. Borrowers should expect to come to the FHA home loan process with a minimum of 12 months of on-time payments for all financial obligations.
That said, disputed accounts and/or issues connected to identity theft may have different requirements (police reports, documentation of the issues, etc.)
When it comes to taxes, FHA loan rules emphasize the requirement to be in a satisfactory payment arrangement with the creditor and a minimum period of on-time payments for that arrangement. You may find this is true for both state and federal taxes, but FHA loan rules concentrate on federal taxes.
In HUD 4000.1, the FHA loan handbook, we learn the following about the FHA stance on borrowers who owe back taxes, starting with a look at the issue of tax delinquency:
“Borrowers with delinquent Federal Tax Debt are ineligible.”
But what about those who have tax liens who are not delinquent? From page 136 of 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.”
Here, some may wonder if it is possible to make a large up-front payment that would be the equivalent of three payments. HUD 4000.1 anticipates this, stating, “The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments.”
Similar rules apply for federal non-tax debt, up to and including delinquency issues related to past FHA home loans. “Mortgagees are prohibited from processing an application for an FHA-insured Mortgage for Borrowers with delinquent federal non-tax debt, including deficiency Judgments and other debt associated with past FHA-insured Mortgages. Mortgagees are required to determine whether the Borrowers have delinquent federal non-tax debt.”
Speak to a loan officer if you aren’t sure how these rules may apply to your specific situation.