July 29, 2014
A reader asks, “I’m trying to get my credit re established after a BK in 2011…3.5 years thus far. I’ve had a 12 month secured loan at my credit union, and I’ve had a non secured card for just over 1 yr now, with 2 credit line increases to 2 k in 1 year of payments.”
“Also trying to pay off, and get a federal tax lien withdrawn of 9 k to help better score in the meantime. The back tax will be paid in full by Dec 31 -2014…and I’m currently in the direct debit acct, so in 3 months they will withdrawn the lien automatically…After all this projected prep,…what else do I need to get in order by early 2016? to smooth sail for the FHA?”
Depending on circumstances, a borrower who has experienced a bankruptcy should expect to wait three years before applying for a new home loan. In some cases a lender may be willing to work with a borrower in less time than that, but much depends on individual circumstances. In some cases, depending on the bankruptcy, the borrower may need the court’s permission to apply for new credit.
One of the important issues raised by this reader question is whether having a federal tax lien against the borrower can hurt the chances of FHA loan approval. According to HUD 4155.1, we learn the following on that issue:
“The Internal Revenue Service (IRS) routinely takes a second lien position without the need for independent documentation. For this reason, eligibility for FHA mortgage insurance is not jeopardized by outstanding IRS tax liens remaining on the property, unless the lender has information that the IRS has demanded a first-lien position. Tax liens may remain unpaid if the lien holder subordinates the tax lien to the FHA-insured mortgage. Note: If any regular payments are to be made, they must be included in the qualifying ratios.”
There’s also the issue of borrowers who have unpaid federal debt, which may or may not include taxes. HUD 4155.1 instructs the lender:
“If, after checking public records, credit information or CAIVRS, a borrower is found to be presently delinquent on any Federal debt or has had a lien (including taxes) placed against his/her property for a debt owed to the Federal government, he/she is not eligible for an FHA mortgage until
• the delinquent account is brought current, paid, or otherwise satisfied, or
• a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.
Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.”
For more information on these rules as they pertain to a borrower’s specific circumstances it will be necessary to speak to a lender.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.