How To Purchase A Home When You Owe The IRS

Certified Mortgage Advisor
NMLS 1701021
Published 
April 19, 2020

You owe the IRS and you want to purchase a home, how to do it?

So if you owe money to the Internal Revenue Service or IRS, then it's going to put a dramatic halt on buying a home and getting approved for a loan.

Why will buying a home becomes more difficult?

The main reason why is because the IRS, if they put a lien on a house, supersedes any other lien. So here's an example, let's say you go purchase a home and then the IRS has a tax lien. They're going to put it on the house and it's going to have more priority than the mortgage lien.  So what that means is if you get foreclosed on the IRS gets paid first before the mortgage lender does, and mortgage lenders don't like that because they want their money. They don't want it to go to the IRS. Because they basically get a loss on that loan.

Outstanding lien, no approval

So they're not going to approve somebody who has an outstanding lien that's not being taken care of. So there are really just two ways to take care of an IRS payment that you have to be made.

Pay in full

So number one is you pay it in full. So we can just get that taken care of. Eventually, it's gonna have to get taken care of anyway, right? We live in the US and taxes provide a lot of benefits for us, so we need to pay our taxes. So it's going to have to get paid.

Set up a payment plan with IRS

So either we paid in full, or if that doesn't work, then you need to set up a payment plan with the IRS. The longer that we let this weigh the worse of an issue, it's going to become the more penalties you're going to pay on that money. So if you can't pay it in full work with the IRS to get a payment plan going, once you get a payment plan, you need to have three on-time payments, and then you can apply for a home.

Those monthly payments are going to have to be calculated in your debt-to-income ratio. So it's something to be mindful of. So those are the two main ways you either pay it in full or get on a monthly payment plan, make three payments, and then you can apply for a mortgage.

Talk with a loan officer
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