Yes, owing the IRS can affect buying a house. The good news is that it’s still possible to get approved for a mortgage if you have tax debt, but it’s important to understand how your debt will affect your application.
How Owing the IRS Affects Your Mortgage Application
When you apply for a mortgage, lenders will look at your credit score, income, and debt-to-income ratio (DTI). Your DTI is the percentage of your income that goes towards paying your debts. If you have a high DTI, it means that you have a lot of debt and may not be able to afford to take on a new mortgage payment.
Owing the IRS can increase your DTI in two ways:
- First, the IRS may garnish your wages to collect the debt. This means that the IRS will take a portion of your paycheck each month to pay off your debt. This will reduce your income and increase your DTI.
- Second, the IRS may place a tax lien on your property. A tax lien is a legal claim that the IRS has on your property. This means that the IRS can seize your property if you don’t pay your debt. This can make it difficult to sell your property or refinance your mortgage.
How to Get Approved for a Mortgage with Tax Debt
If you owe the IRS you may still be able to get approved for a mortgage. Here are a few things you can do to increase your chances of getting approved:
- Make a payment plan with the IRS. This will show lenders that you are taking steps to resolve your debt.
- Get a co-signer. A co-signer is someone who agrees to be responsible for your debt if you default on your mortgage. This can help you qualify for a mortgage if you have a low credit score or a high DTI.
- Put down a larger down payment. This will reduce the amount of money you need to borrow and lower your DTI.
- Shop around for a lender. Some lenders are more willing to work with borrowers who have tax debt than others.
Owing the IRS can make it more difficult to get approved for a mortgage but it’s not impossible. By taking steps to resolve your debt and working with a qualified lender you can still achieve your dream of homeownership.
Frequently Asked Questions
Q: Can I buy a house if I owe the IRS back taxes?
A: Yes, you can buy a house if you owe the IRS back taxes, but it may be more difficult to get approved for a mortgage. The IRS may garnish your wages or place a tax lien on your property, which can make it difficult to sell your property or refinance your mortgage.
How much tax debt is acceptable to have and yet be denied a mortgage?
A certain amount of tax debt does not automatically prevent you from being granted a mortgage approval. However, it will be harder to get approved if you have a larger tax debt.
Q: What can I do to increase my chances of getting approved for a mortgage with tax debt?
A: By working out a payment plan with the IRS, obtaining a co-signer, making a larger down payment, and comparing rates with multiple lenders, you can improve your chances of being approved for a mortgage even if you have tax debt.
What occurs if I owe the IRS and go into default on my mortgage?
A: The IRS may be able to seize your property if you fall behind on your mortgage payments and owe them money. This means that you could lose your home.
Where can I find more details about purchasing a home while having outstanding tax debt?
A: You can get more information about buying a house with tax debt from the IRS website or from a qualified mortgage lender.
Additional Resources
Consult a Tax Professional
Tax issues can be complex, especially when you’re trying to navigate the home buying process. Speaking with a tax expert or seasoned tax lawyer can offer insightful analysis and situation-specific guidance. Additionally, if you have a plan to deal with the situation and are taking it seriously, your tax lawyer can negotiate on your behalf.
Take meaningful steps to manage your debt and improve your overall financial health. This could entail raising your credit limit, paying off other debt, or increasing your savings for a down payment.
Tips for Selling a Home with a Lien
The following actions should be taken into consideration if you need to sell your house and you have an IRS lien: