IRS Tax Debt Affect Your Home Loan App

[Silverline]

What is the name of your state (only U.S. law)? Ohio

It's my understanding that back taxes to IRS are not included in your credit report as long as it's less than $10,000 and you've entered into a payment plan agreement [and maintain scheduled payments]. My question pertains to when you turn over your prior two years tax returns for closing. If your tax returns states you owe are you required to prove that debt is settled [paid in full]?

The IRS has not filed a notice of federal tax lien (NFTL) for the debt. I mailed my amended return yesterday, along with form 9465 requesting a payment plan to settle up. I understand each lender is unique and it's difficult to forecast everything that may happen or be required. Just trying to get a handle on what is customary / typical in most situations. Basically, what is the likelihood the bank will consider the debt owed to the IRS when factoring your loan approval? TIA

 

[adjusterjack]

Basically, what is the likelihood the bank will consider the debt owed to the IRS when factoring your loan approval?

Very high likelihood.

The lender will want to know all of your debts and all of your monthly payments regardless of who those payments are made to.

Your monthly payments to the IRS will reduce your discretionary income by the amounts of those payments and the lender will certainly take that into consideration.

There are just too many variables for anybody to make a definitive statement about your eligibility but I'll give you some examples that you can think about.

If your credit score is 750-800 and your take home pay is $4000, your monthly expenses $1500 and you want to add a mortgage payment of $1000 that leaves you a cushion of $1500. If the IRS wants $200 per month you still have a cushion of $1300. You shouldn't have any difficulty getting a loan.

But if your credit score is under 700 and your take home pay is $3000, your monthly expenses $1500 and you want to add a mortgage payment of $1000 that leaves you a cushion of $500, borderline at best but $200 to the IRS out of that $500 leaves you a cushion of $300 and pushed you into the high risk borrower category.

All of those numbers can vary in so many different ways.

You can plug in your own figures but the bigger your cushion the better your chances are of getting a loan.

Oh, one more thing. Money in the bank helps. If you live paycheck to paycheck and have no savings, and owe the IRS, you seriously reduce your chances of getting a mortgage.

All I can suggest is that you apply and see how it goes.

 

[STEPHAN]

I have owned much more to the IRS and it was never in my credit history.

Also, under 25K they do not need a lien.

 

[Silverline]

Very high likelihood.

The lender will want to know all of your debts and all of your monthly payments regardless of who those payments are made to.

Your monthly payments to the IRS will reduce your discretionary income by the amounts of those payments and the lender will certainly take that into consideration.

There are just too many variables for anybody to make a definitive statement about your eligibility but I'll give you some examples that you can think about.

If your credit score is 750-800 and your take home pay is $4000, your monthly expenses $1500 and you want to add a mortgage payment of $1000 that leaves you a cushion of $1500. If the IRS wants $200 per month you still have a cushion of $1300. You shouldn't have any difficulty getting a loan.

But if your credit score is under 700 and your take home pay is $3000, your monthly expenses $1500 and you want to add a mortgage payment of $1000 that leaves you a cushion of $500, borderline at best but $200 to the IRS out of that $500 leaves you a cushion of $300 and pushed you into the high risk borrower category.

All of those numbers can vary in so many different ways.

You can plug in your own figures but the bigger your cushion the better your chances are of getting a loan.

Oh, one more thing. Money in the bank helps. If you live paycheck to paycheck and have no savings, and owe the IRS, you seriously reduce your chances of getting a mortgage.

All I can suggest is that you apply and see how it goes.

I appreciate the advice Jack. My current credit score is between 730 [credit karma] - 754 [credit.com]. Current take home [including pension] is $3200. I work a part time job but exploring another part time gig just so I can knock out this 8k tax debt. Rent is $725. I wasn't looking for go more than $900 on my mortgage.

Last fall I was able to knock out the majority of my cc balances [still have $2900 to go]. I was really looking forward to just having a car payment [$147] so this IRS deal really threw me for a loop. I requested a $125 [monthly] payment plan with them. I have 90k in an IRA but would rather not tap into that since I'm getting a good return.

 

[Zigner]

I have 90k in an IRA but would rather not tap into that since I'm getting a good return.

In my book, that's a bonehead thing to do.

 

[Silverline]

Just calculated my Front-end and Back-end DTI ratios.

$950 [projected new housing payment including taxes and insurance]

$3982 monthly gross

23.8% Front-end DTI


$950 [projected new housing payment including taxes and insurance]
$160 cc monthly payments *
$150 MINI Cooper payment
$125 IRS installment loan
-----
$1,385

34.7% Back-end DTI



* The goal is to knock out all cc debts before applying but this is where I stand at the moment.

 

[HUD-1]

On an FHA loan, the lender SHOULD request proof of payment of the taxes due shown on the last two years returns. They can accept a re-payment plan, and the monthly payment would be added to the debt to calculate the ratios. There is a box on page 4 of the URLA (loan application) you will have to check stating that you have no delinquent Federal debts...

 

[Silverline]

Update: Received a response from the IRS on [9465] requesting to establish a payment plan.


It states "We can't consider your installment request because we haven't finished processing your account. If you haven't full paid the account you owe by the time we process your account, we'll send you a notice of your balance due. At that time, return that notice with full payment or your proposal for payment."


1>. Is this SOP? It's only been a month since my request.

2>. Typically how long will does this processing take?

3>. What are the odds they'll agree to the payment schedule?

4>. I'm assuming I should proceed and begin submitting the amount I requested on my 9465 form to satisfy lenders requirement you have 3-6 month payment history.

 

[HUD-1]

Probably better to post those questions in the Tax forum rather than the Real Estate forum...