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Can you qualify for a USDA mortgage with an IRS tax lien or repayment plan?

May 15th, 2020 by Sean Stephens

Tampa FL USDA Approved Lender ListI know that many of you are thinking that an IRS tax lien will automatically put a stop to the USDA loan process.

However, USDA guidelines offer qualifying flexibility in cases of delinquent Federal tax debt. In today’s short video, I’ll review the details of qualifying for a USDA mortgage with a tax lien.

Please also take advantage of our FREE download, “USDA Blueprint for Success.” This is a great educational resource that breaks down the USDA loan process step by step. It’s a must-have for realtors and home buyers alike.

Please Note: Today’s topic deals specifically with IRS repayment plans as it pertains to USDA loan qualifying. This is not tax advice.  For any further IRS related questions, please consult with your tax professional.

Tax Liens and Repayment Plans

Tax Lien: Per the IRS, “A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a debt.” Additionally, when you do not fully pay the debt, the IRS will file a Notice of Federal Tax Lien in order “to alert creditors that the government has a legal right to your property”.

Repayment Plans: Depending on the specific tax situation, different types of IRS installment repayment plans may be available. This allows the balance to be paid over an extended amount of time.

Can you qualify for a USDA mortgage with a tax lien or repayment plan?

You can qualify for a USDA mortgage with Federal tax liens when all of these conditions are met:

  1. Sebring, Avon Park, Highlands County USDA LoansThey are in an approved repayment plan.
    • USDA guidelines specifically state: “An applicant with delinquent Federal tax debt is ineligible unless they have a repayment plan approved by the IRS.”
  2. They have made a minimum of 3 timely payments to their repayment plan.
    • USDA guidelines specifically state: “A minimum of three timely payments must have been made.  Timely is defined as payments that coincide with the approved IRS repayment agreement.”
  3. The 3 minimum payments cannot be prepaid in a lump sum.
    • USDA guidelines additionally state: “the applicant may not prepay a lump sum at one time to equal three monthly payments to meet this requirement.”

Documentation needed will be items such as the IRS installment repayment agreement and relevant payment history to reference the terms have been met which could be evidenced through bank statements or cancelled checks.

Lastly, don’t forget that your monthly repayment plan installments are also included within your USDA debt ratios.

Yes, You Can Qualify

Can you qualify for a USDA mortgage with a tax lien or repayment plan?

In summary, qualifying for a USDA loan with an outstanding IRS tax lien is possible with proof of an approved repayment plan as discussed above.

As an approved USDA lender, we are here for your unique qualifying situation. We have dedicated systems in place from pre-qualification to closing. Simply call or email to discuss your scenario or if would just like to take advantage of our free 2nd opinion service.

800-806-9836 Ext. 280
SeanS@MPLX.org

Make it a great day and I look forward to seeing you for the next tip of the week!

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