You can get a mortgage if you owe taxes, provided the debt is under an active IRS installment agreement, you have a documented payment history, and no Notice of Federal Tax Lien has been filed against you. A recorded lien changes the picture: most loan programs will not close until it is resolved. The rest depends on your loan type, how the monthly IRS payment fits into your debt-to-income ratio, and how honestly and completely you document everything for the lender.
Owing Taxes vs. Having a Lien Filed
The single most important distinction in your file is whether the IRS has only assessed the debt or has also filed a public Notice of Federal Tax Lien (NFTL). The moment the IRS assesses tax, bills you, and you fail to pay, a statutory lien arises automatically on everything you own under 26 U.S.C. § 6321.1Office of the Law Revision Counsel. 26 USC 6321 – Lien for Taxes That “silent” lien generally is not enforceable against a mortgage lender or buyer until the IRS files a public NFTL with the local recording office.2Office of the Law Revision Counsel. 26 USC 6323 – Validity and Priority Against Certain Persons
Once the NFTL is on record, the IRS has priority over later creditors, including your new mortgage lender.3Internal Revenue Service. IRM 5.17.2 Federal Tax Liens Lenders require a clean title, and a filed lien is exactly the kind of claim that clouds it.4Fannie Mae. Understanding the Title Process So the practical rule is simple. Unpaid tax debt with a payment plan and no filed lien: usually workable. Filed lien: resolve it before closing, or the loan will not fund.
How Your IRS Payment Plan Affects What You Can Borrow
If you have an installment agreement with the IRS, that monthly payment counts as recurring debt in your debt-to-income (DTI) calculation, the same way a car loan or student loan payment does. A $500 monthly tax payment can shrink the mortgage you qualify for by tens of thousands of dollars over the life of the loan.
There is no single federal DTI cap. The Consumer Financial Protection Bureau replaced the old 43 percent hard limit for qualified mortgages with a price-based threshold, so lenders and loan programs now set their own ceilings.5Consumer Financial Protection Bureau. Qualified Mortgage Definition Under the Truth in Lending Act – General QM Loan Definition Most conventional lenders look for a total DTI between 43 and 50 percent. FHA is more flexible, allowing ratios up to 57 percent when compensating factors like cash reserves or a higher credit score are present.
What Each Loan Program Requires
FHA
Under HUD guidelines, you can qualify for an FHA loan while on an IRS installment agreement if you have made at least three consecutive on-time payments and document the agreement.6U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 The installment payment counts toward DTI. If an NFTL has been filed, expect to resolve it through subordination or withdrawal before the loan can close.
Fannie Mae (Conventional)
Fannie Mae requires delinquent federal taxes and any tax liens to be paid off at or before closing. If you have an approved IRS installment agreement and no NFTL has been filed, the monthly payment goes into your DTI and the loan can proceed.7Fannie Mae. Debts Paid Off At or Prior to Closing If a lien has been filed, Fannie Mae requires the tax debt to be paid in full before closing, even with a payment plan in place.
Freddie Mac (Conventional)
Freddie Mac takes a similar approach. If your IRS installment agreement has more than 10 months of payments remaining, the monthly payment is included in DTI. The lender must verify you are not past due on the agreement and that no NFTL has been filed. A filed lien generally must be resolved before closing.
VA
VA loans are stricter. Borrowers with a federal tax lien typically need an approved payment plan and must show at least 12 consecutive months of on-time payments before they can qualify. The installment amount counts toward DTI. Because of the longer payment history requirement, VA applicants should begin resolving tax debt well ahead of shopping for a home.
USDA
Applicants delinquent on federal tax debt are ineligible for a USDA single-family guaranteed loan unless they pay the balance in full or have an IRS-approved repayment plan with at least three consecutive on-time monthly payments.8USDA Rural Development. Single Family Housing Guaranteed Loan Program Credit Analysis You cannot make a lump-sum prepayment to satisfy the three-payment requirement; each payment must be made separately on its scheduled date. An IRS extension to file your return does not extend the deadline to pay taxes already due.
Clearing a Filed Tax Lien Before Closing
If an NFTL is on record, you have four ways to move forward.
Pay in Full and Wait for the Release
Once you satisfy the tax debt, or the debt becomes legally unenforceable, the IRS must issue a certificate of release within 30 days.9Office of the Law Revision Counsel. 26 USC 6325 – Release of Lien or Discharge of Property A release clears the title. If you plan to pay off the balance close to a target closing date, build in that 30-day window so the release is recorded before the title search.
Request a Subordination
A subordination does not erase the lien; it moves the IRS behind the mortgage lender so the lender holds the first claim. You apply by submitting Form 14134.10Taxpayer Advocate Service (TAS). Lien Subordination The IRS generally approves subordination when doing so helps the government collect the tax, for example when a mortgage lets you buy a home that will appreciate.11Internal Revenue Service. Understanding a Federal Tax Lien
Request a Withdrawal Under Fresh Start
A withdrawal removes the NFTL as if it had never been filed. Taxpayers on a direct debit installment agreement may qualify if all of the following are true:
- The total unpaid balance of assessments on the agreement is $25,000 or less.
- The agreement will pay the full balance within 60 months or before the collection deadline, whichever comes first.
- At least three consecutive electronic payments have been processed under the direct debit agreement with no defaults.
- You are current on all other filing and payment obligations.
You apply using Form 12277.12Internal Revenue Service. IRM 5.12.9 Withdrawal of Notice of Federal Tax Lien If approved, the IRS files a notice with the recording office where the original lien was filed and can also notify credit agencies and financial institutions at your request.13IRS.gov. Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien
Disclosing the Debt and Documenting the Plan
The Uniform Residential Loan Application (Form 1003) asks directly whether you are delinquent or in default on any federal debt.14Fannie Mae. Instructions for Completing the Uniform Residential Loan Application Unpaid IRS tax debt is federal debt and must be disclosed. Making a false statement on a mortgage application is a federal crime under 18 U.S.C. § 1014, with penalties up to $1,000,000 in fines, up to 30 years in prison, or both.15Office of the Law Revision Counsel. 18 USC 1014 – Loan and Credit Applications Generally Concealment rarely works in any case; lenders verify your tax history through IRS transcripts, and undisclosed liabilities discovered during underwriting typically end the application.
Expect to hand over several layers of paperwork:
- Your IRS installment agreement, typically Form 433-D, confirming the monthly payment amount and total balance.16Internal Revenue Service. Form 433-D – Installment Agreement
- IRS tax return and account transcripts, which lenders pull directly using Form 4506-C through the Income Verification Express Service.17Internal Revenue Service. Form 4506-C – IVES Request for Transcript of Tax Return18Internal Revenue Service. IRS Income Verification Express Service (IVES) FAQs
- Recent bank statements showing the electronic withdrawals to the IRS match the agreement.
- A letter of explanation describing how the debt arose and what you have done to address it.
If payment amounts on your bank statements do not match your installment agreement, or transcripts show tax liabilities you did not disclose, the lender will pause or deny the application until the numbers reconcile.
Offer in Compromise and Deferred Collection
One boundary worth flagging: if you are negotiating an Offer in Compromise, mortgage eligibility becomes harder, not easier. The IRS may file an NFTL during the offer process, even before deciding on your proposal.19Internal Revenue Service. Offer in Compromise FAQs A pending offer also means underwriters cannot pin down a stable monthly payment or final balance for DTI. If your offer is accepted, plan to wait until the terms are fulfilled and any lien is released before applying. Borrowers in deferred collection status face the same problem: no confirmed monthly payment for the lender to underwrite, and no guarantee collection will not resume.
Staying Clean Through Closing
Approval is not the finish line. Before closing, the title company searches public records to confirm no new tax liens were filed since the application, and underwriters run a final credit check to verify the balance has not grown and no payments were missed.4Fannie Mae. Understanding the Title Process A new lien filing, a missed installment, or an unexplained balance increase at this stage can delay or cancel the closing. Keep the direct debit running on schedule from the day you apply until the day you sign.