Will a tax lien prevent me from buying a home?

Q: I have a tax lien. I’ve been in a payment plan for the past year.  Will this prevent me from buying?

A: The short answer is "no.”

The tax lien shouldn't prevent you from buying a home, unless the IRS is required to be in a first-lien position against your prospective home.

While the FHA program will probably be the easiest avenue available to you, you could also consider a loan guaranteed by Fannie Mae or Freddie Mac.

Fannie, Freddie guidelines

Fannie Mae states in their underwriting guidelines that:

"Open judgments, garnishments and all outstanding liens that are in the Public Records section of your credit report will be identified in the Underwriting Findings report, and must be paid off prior to closing."

This of course includes tax liens.

FHA guidelines

With regard to the FHA program, HUD regulations state that:

"The borrower is not eligible until the delinquent account is brought current, paid or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing." They continue, "Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage."  HUD further states that, "If any regular payments are to be made, they must be included in the qualifying ratios."

A commitment against your income

At the very least, the lien repayment plan does represent a commitment against your income, so the amount of mortgage you can qualify to borrow will of course be affected.

In turn, this affects whether or not there are any homes for sale in a location in which you hope to buy that are affordable despite this impairment of your income.

As such, you are not prevented from buying, but when all is said and done, there may or may not be anything which you are interested in buying or can qualify to buy.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Submitting your question...

Question received! Check back later to see if your
question gets published.

Q: How many times can I use my VA home loan?
OCT 31, 2019
A:

There are three ways you can restore your VA eligibility so that you can take advantage of it more than once.

Read More
Q: Can my lender ask me why I'm buying a specific home?
NOV 06, 2018
A:

Lenders can ask you why you are buying a specific home because there are different lending rules for different types of properties.

Read More
Q: Does the VA allow "asset depletion" mortgages?
SEP 20, 2018
A:

Can you use private-sector retirement income and savings to help qualify for a VA-backed mortgage?

Read More