April 24, 2015
A reader asks, “I have a payment plan on a tax lien from 2009 which I have been paying on time for a few years. Other than that, my credit is perfect. I am wondering if this would be okay for an FHA loan. I have records from IRS showing that this is being paid and can present them as well.”
This is an important question. FHA loan rules do not permit borrowers who are delinquent on federal debts to apply for an FHA home loan until that delinquency has been addressed. But what about situations like the reader question, where there is no delinquency, but the federal debt still exists?
FHA loan rules that govern the tax lien issue can be found in HUD 4155.1, Chapter Four, Section A. The lender is required to check public records and other data to see if the applicant is delinquent on a federal debt. In cases where the borrower is delinquent, an FHA mortgage is not possible until “the delinquent account is brought current, paid, or otherwise satisfied, or a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.
In the case of this reader question, it sounds as if the repayment plan portion of the rule has been satisfied; the borrower will need to show proof of that payment plan in writing as mentioned above.
FHA loan rules in this area add that a tax lien, “may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage. That means the lender’s discretion is required. Not all lenders may be willing to do this, but borrowers should shop around for a financial institution that will work with the circumstances.
All lenders are different, so what may not be possible with one may be no problem with another; the deciding factors may be the borrower’s FICO scores, and other credit history aside from the tax lien.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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