The Federal Housing Administration (FHA) offers flexible loan terms and low down payment requirements, making it attractive for people with a variety of financial backgrounds. Despite this, it is important to understand if you owe back taxes and how they might affect your ability to get a FHA loan.
The first step is to find out what back taxes are owed. The IRS can provide this information and help figure out what is owed. Once this is known, it is important to determine how much can be paid off before trying to refinance or purchase a home. There are two options: paying off the entire amount or setting up a repayment plan with the IRS.
If a homeowner chooses to pay off the entire amount, the FHA requires that it is done within six months prior to applying for the loan. This can be done through either an installment agreement or lump-sum payment. If a repayment plan has been arranged with the IRS, the FHA requires that a minimum of 12 months have passed since the payment was made. It is also important to note that if the taxes were due to negligence instead of financial hardship, the FHA may not approve the loan.
In addition to the above requirements, there are other factors to consider when trying to get a FHA loan with back taxes owed. The total tax debt must be equal to or less than two percent of the total mortgage loan amount. This means that if the loan amount is $100,000, then the back taxes cannot exceed $2,000.
It is also important to recognize that not all FHA lenders will accept applicants with back taxes owed. While some may do so, others may not. It is important to research various lenders and find out which ones are most likely to approve the loan.
In summary, getting a FHA loan when back taxes are owed is possible, but there are certain requirements that must be met. Homeowners must make sure to have the back taxes paid off in full or on a repayment plan that has been active for at least 12 months. Additionally, the total debt must not exceed two percent of the total mortgage loan amount. Furthermore, not all lenders will accept applicants with back taxes owed, so it is important to research various lenders to find out which ones are most likely to approve the loan.
This article was contributed on Aug 11, 2023