June 17, 2016
We get many different types of questions about FHA home loans and refinance loans in our comments section. Here’s one of the latest, asking about applying for an FHA mortgage with a lien on the credit record:
“I had a lien that was paid off by a relative and the lien released. Is the IRS required to release the date the lien was paid off to the underwriter or is the notice of release sufficient? The debt has been paid, isnt that all that matters?”
The most important thing, in general terms, is that there is 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.
While it is true that satisfying the financial obligation is very important, the documentation is equally important.
Another thing to consider in such cases is that 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.
That means there may (or may not, depending) be varying standards or requirements, especially in cases where a negative credit factor is involved. 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.
Situations like these are good examples of why many 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.
A borrower with a tax lien, 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. Taking a little additional preparation time before filling out a loan application is never a bad thing, especially when it comes to making sure you have all the right documents to submit should the lender need them.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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