When you apply for a mortgage, the lender takes a deep dive into your finances. You may wonder whether the back taxes you owe to the IRS will come to light during this application process. Can you buy a house if you owe taxes, or will a lender reject the application?
Generally, owing back taxes will not bar you from buying a house. However, the answer depends primarily on the lender’s specific requirements.
Mortgage lenders examine all sorts of financial requirements to determine eligibility for this sizable loan. They may consider:
If you have a tax lien from the IRS, the lender might find out through a title or public records search. Regardless, you should disclose tax debt during the loan application. This will give you a chance to explain the debt and demonstrate how you plan to repay it. Trying to hide any financial information from the mortgage lender could harm your eligibility for a loan.
Can you buy a house if you owe taxes? Owing a small amount of tax to the IRS likely won’t affect your mortgage approval too much, but owing significant back taxes might.
The IRS can place a tax lien on your property if you owe sizable back taxes and have avoided paying them for some time. This lien secures the government’s interest in your property and assets. If you do not pay the tax debt at this point, the government can levy your property, seize it, and sell it to pay off the debt.
Tax liens don’t reflect well on you. They indicate that you may not be responsible enough to borrow a mortgage and make on-time payments.
While tax liens no longer appear on credit reports, lenders can uncover them through other means. A Notice of Federal Tax Lien appears on public record searches.
Can you buy a house if you owe taxes? Maybe, but you might need to take other steps to improve eligibility for a mortgage.
The easiest step is simply paying off the tax bill. This shows the mortgage lender that you are responsible and that the back taxes will not prevent you from making monthly mortgage payments.
Of course, not everyone is in a position to pay an entire tax bill in one lump sum. Instead, you can apply for an IRS payment plan to start paying the back taxes in installments. If you qualify, you can share the details of the plan with the lender to improve your mortgage eligibility. You’ll want to ensure that the monthly payment amount will not negatively affect your ability to make mortgage payments.
You can also take steps to improve other lender requirements:
These steps can also place you in a better financial situation to prevent future tax issues.
So, can you buy a house if you owe taxes? Levy & Associates can help you determine how back taxes may affect mortgage eligibility. Then, we can guide you through options for repayment, such as an installment plan. Contact us today at 313-447-1704 or fill out our online form for a consultation.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.