February 9, 2015
A reader asks, “if I have state taxes being taken out of my check as a garnishment will that disqualify me for FHA loan?”
FHA loan rules found in HUD 4155.1 Chapter Four address delinquent federal taxes in association with an FHA loan, but not state taxes specifically. However, we can get an idea of the FHA’s position on this issue by reading what it has to say about a borrower who may be delinquent on federal taxes:
From Chapter Four of HUD 4155.1:
“If, after checking public records, credit information or CAIVRS, a borrower is found to be presently delinquent on any Federal debt or has had a lien (including taxes) placed against his/her property for a debt owed to the Federal government, he/she is not eligible for an FHA mortgage 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.”
Chapter Four adds, “Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.”
So it may be that state taxes are viewed in the same way depending on the lender–but lender standards a very important thing to keep in mind. Just because the FHA loan rules permit this does not automatically mean the lender will also permit it.
Garnishment of wages may at the very least be taken into account where the borrower’s debt-to-income ratio is concerned.
But if the lender chooses to interpret the wage garnishment as a reflection of the borrower’s creditworthiness, even if FHA loan minimum standards imply loan approval is still possible, the lender may choose not to extend credit. It all depends on circumstances.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review prior to posting.
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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