Getting a Mortgage While You Owe the IRS
An approved installment agreement does not have to be paid off before you close. Four conditions have to be met, and one of them trips up most files.
An installment agreement is workable
Owing back taxes is not the same as being disqualified.
- Approved installment agreements are permitted rather than requiring the balance to be paid off before or at closing.
- The file needs a copy of the approved plan showing the repayment terms, the required payment, and the total amount due.
- You have to be current on the plan as of closing. A missed payment while the loan is in process is a real problem.
- The payment required under the plan is counted in your debt calculation, the same way a car loan would be.
- The critical condition: the plan cannot carry a lien on any property. A recorded federal tax lien changes the answer.
- At least one program requires a three-month history of payments on the plan before the balance may remain unpaid at closing.
Approved installment agreements
Balance does not have to be paid off
Conventional, jumbo and non-agency
Government loan programs
Payment counted as a debt
Purchase or refinance
The Lien Is The Dividing Line
Everything turns on whether the IRS has recorded a claim against property.
An installment agreement is an arrangement to pay over time. A tax lien is a recorded legal claim against your property. They are different things, and guidelines treat them very differently. The permission to leave a tax balance unpaid at closing is explicitly conditioned on the plan not carrying a lien on any property. Once a lien exists, the conversation shifts from whether the plan is current to whether the lien can be released, subordinated, or paid.
If you are not sure which situation you are in, that is the first thing to establish, and it is knowable. A tax lien is recorded publicly and generally shows up in a title search. Getting a title search early on a refinance, or a preliminary title report on a purchase, answers the question before it becomes a closing condition.
The second thing to know is that the plan payment counts against you. It goes into the debt calculation like any other monthly obligation, which reduces the loan amount you qualify for. That is not a reason to pay the plan off, necessarily, since the balance would come out of your down payment or reserves instead. But it is worth modeling both ways rather than assuming.
How to handle a tax balance during a loan
Six things that determine whether this goes smoothly.
Get The Plan Approved Before You Apply
Guidelines require an approved installment agreement, not a pending request and not an informal intention to pay. A plan that is still being negotiated with the IRS is not documentation.
Do Not Miss A Payment Mid-Process
You have to be current on the plan as of closing. Underwriting will verify it. A payment missed between application and closing can undo an otherwise finished file.
Find Out Whether A Lien Was Filed
This is the single fact that determines the path. It is publicly recorded and a title search will surface it. Better to know in week one than in week five.
Bring The Plan Documents Up Front
The approval letter with the repayment terms, the required payment, and the total balance. Underwriting needs the actual document, not a screenshot of an account balance.
Expect The Payment In Your Debt Ratio
The required payment under the plan is included in the calculation. If it is large, it may be worth discussing whether paying the balance down changes what you qualify for.
Some Programs Want Payment History
At least one program allows the balance to remain unpaid only where there is a three-month history of payments on the plan. Establishing that history before applying is a small, concrete step that widens your options.
Hear From Homeowners Like You
Frequently Asked Questions
Questions from borrowers who owe back taxes.
Not necessarily. Guidelines permit an approved IRS installment agreement to remain in place, provided you are current on it, the payment is counted in your debt calculation, the file contains the approved plan, and the plan does not carry a lien on any property.
A plan is an agreement to pay over time. A lien is a recorded claim against property. The permission to leave a balance unpaid depends specifically on there being no lien, so the distinction matters more than anything else in this file.
Not automatically, but it is a different and harder conversation. The general rule across these guidelines is that liens must be paid off prior to or at closing. What is possible depends on the lien, the equity, and the program.
Yes, in the sense that the required payment is included in your debt calculation. It reduces borrowing capacity the same way any other monthly obligation would.
It depends on the program. At least one requires a three-month payment history before the balance can remain unpaid. Others require only that you are current as of closing.
Guidelines generally address delinquent taxes at federal, state, and local levels together, with the same expectation that they be paid off unless the installment agreement conditions are met. Bring us the details and we will check the specific program.
Government programs also address tax repayment agreements. The documentation expectations are similar: an approved plan, evidence you are current, and the payment counted in your ratios.
Find out what you qualify for
Two documents answer almost every question here: your IRS installment agreement approval letter and a title search showing whether a lien was recorded. Send us those and we will tell you exactly where you stand before you spend money on anything.
Get Pre-QualifiedRequirements for tax repayment agreements vary by loan program and investor and are subject to change. Delinquent federal, state, and local taxes generally must be paid prior to or at closing unless specific installment agreement conditions are met, including that no lien has been recorded against any property. Saxton Mortgage does not provide tax or legal advice. Not all applicants will qualify. This is not a commitment to lend.