Will a Tax Lien or Other Unpaid Tax Debt Prevent Me from Buying a House?
When you apply for a mortgage, one of the first things the lender will do is run a credit check. If you have income or other tax arrearages, they will most likely appear on your credit report, whether the tax debt is state or federal. Will that automatically prevent you from qualifying for a mortgage? What can you do to maximize the likelihood of eligibility for a home mortgage?
Can You Qualify for a Home Mortgage If You Have Unpaid Tax Arrearages?
The simple fact that you have past-due taxes with a state revenue agency or with the Internal Revenue Service will not automatically disqualify you for a home mortgage loan. It’s important to understand, though, that there are a number of ways that your state or federal tax debt can disqualify you for a home loan:
The revenue authority can put a lien on your existing property—If you have back taxes, it’s possible that the revenue agency will attach a lien to your property (real and personal). If there’s a lien on your property, it must be satisfied before you can receive any of the proceeds of the sale. If you have equity in your current home and plan to use that equity as a down payment for a new home, you will only have access to what’s left after the tax lien is satisfied. If that’s not enough for a down payment, you may not qualify.
As a general rule, the IRS won’t attach a tax lien unless you fail to respond to collection attempts. If you work out a payment arrangement, there typically won’t be a lien.
Will a tax lien automatically disqualify you from eligibility for a mortgage? Not necessarily, but the mortgage options available to you will typically come with significantly higher interest rates, making payments unaffordable to you.
- The amount you have to pay monthly to settle your tax debt may not leave you with adequate discretionary income to make house payments—Your lender will want to know that you have the requisite income to pay all your other bills and still have plenty left to make your mortgage payments. If your monthly payments to a revenue authority are substantial, you may be denied a mortgage, based on the lender’s concern that you won’t have enough discretionary income to make the payments.
- A tax debt can make a lender consider you a higher security risk—Lenders typically look for debtors who honor their financial commitments. The failure to pay your taxes indicates otherwise. Accordingly, a lender may simply consider you a bad risk and deny your application, or may offer you financing at a much higher interest rate.
Contact the Experienced Tax and Real Estate Lawyers at Bailey & Galyen
At the law office of Bailey & Galyen, we your concerns about qualifying to purchase a new home when you have past-due taxes with a state or federal revenue agency. We have a comprehensive understanding of the laws and regulations governing your eligibility and can help you take the steps to qualify for a mortgage. We offer a free initial consultation to every client. To speak with a compassionate, but aggressive family law attorney, contact us by e-mail or 844-402-2992 call our offices at one of the convenient locations listed below. We will take your call 24 hours a day, seven days a week.