Can You Get a Home Loan If You Owe Taxes in 2025?

Quick answer (TL;DR)

Yes — sometimes. Owing taxes does not automatically disqualify you for a mortgage in 2025, but it changes the path and the options. Lenders will evaluate whether the taxes are unfiled, unpaid, or secured as an IRS lien. If you can document income, show a repayment plan, or resolve most tax issues before closing, many loan programs remain available.

This guide walks through lender requirements, the realistic loan programs that can work, the documentation lenders want, practical steps to improve your approval odds, sample timelines, and example borrower scenarios so you can plan your next move with confidence.

Why taxes matter to mortgage lenders

Lenders use tax returns and IRS transcripts as one of the most reliable signals of income stability and compliance. For self-employed borrowers and small-business owners, tax returns are often the primary way to show sustainable earnings. When taxes are unpaid or unfiled, lenders face two problems:

1. Income verification challenge: Without tax returns or IRS transcripts, it's harder to confirm the sustainability of your earnings.
2. Collection risk: Unpaid taxes can turn into liens, levies, or judgments, which are encumbrances that affect the lender's security and the borrower's debt-to-income (DTI) ratio.

That said, not all tax issues are equal. If you owe a relatively small amount and are on a formal IRS installment agreement, many lenders will still consider you — especially if you can document consistent on-time payments. If there’s an active lien or long-standing tax debt with no plan to repay, your options shrink.

Three tax situations lenders treat differently

• Unfiled returns: Lenders worry because they can’t see verified income. Many lenders will ask for immediate filing and IRS transcripts before final approval.
• Filed but unpaid taxes: If returns are filed but taxes are owed, lenders look for payment arrangements (e.g., an IRS installment agreement) and evidence of consistent payments.
• IRS lien or levy: Liens complicate closing. Some lenders will allow loans if the lien is subordinated or satisfied, or if the borrower provides proof of a repayment resolution.

Each of these situations affects loan programs differently. For instance, conventional and agency-backed loans (Fannie/Freddie) have stricter documentation rules than some non-QM or portfolio lenders.

What lenders will ask for

When tax issues exist, expect lenders to request extra documentation and to perform deeper underwriting:

• IRS transcripts (Form 4506-T or IRS transcripts requested by the lender).
• Filed tax returns for 1–2 years (most conventional lenders require two years for self-employed borrowers).
• Proof of an IRS payment plan or Letter of Acknowledgement for active repayments.
• Bank statements (12–24 months) to corroborate income and deposits.
• CPA or tax preparer letters verifying business income if returns are out of date.
• Documentation of resolved liens or proof of funds to pay off tax liabilities at/ before closing.

If you’re working with a mortgage broker, they’ll usually coordinate requests and help package the documentation to present your case in the strongest possible light.

Loan programs that might work

Not every loan program treats tax issues the same. Below is a practical ranking from most restrictive to most flexible.

1. Conventional (Fannie Mae / Freddie Mac)

Conventional loans typically require tax returns and will scrutinize unpaid tax debt. If taxes are owed but on a formal repayment plan with documented on-time payments, some conventional lenders will proceed. However, final approval often waits until transcripts and repayment documentation are received.

2. FHA loans

FHA can be more flexible but still requires documented efforts to resolve tax liabilities. For some FHA cases, recently filed returns and a satisfactory repayment plan are sufficient. FHA underwriters exercise discretion but do require full disclosure of tax issues.

3. VA loans

VA loans follow similar guidelines to FHA regarding tax debts; veterans with repayment plans and documented on-time payments may still qualify depending on the total borrower risk profile.

4. Bank statement programs & non-QM lenders

These lenders place more weight on bank deposits than tax transcripts and can be a realistic option for self-employed borrowers who owe taxes. They are often more flexible but may charge higher rates.

5. Hard-money / private lenders

Private lenders focus on collateral and loan-to-value (LTV) rather than tax compliance; they can close quickly but are short-term and expensive. They can be a bridge option while tax issues are resolved.

How to present your case to underwriters (step-by-step)

If you owe taxes follow a methodical approach to minimize delays and strengthen your approval odds:

1. Get your tax picture in order: File any unfiled returns immediately. If you owe, still file — underwriters prefer filed returns even when a balance is due.
2. Request IRS transcripts: Lenders prefer transcripts to verify filings and balances. Use Form 4506-T to authorize your lender to pull transcripts directly.
3. Negotiate a repayment plan with the IRS if needed: An installment agreement shows intent to pay and reduces underwriter concerns.
4. Document on-time payments: If on a repayment plan, show consecutive on-time payments (many lenders expect 3 consecutive payments before approving certain loan programs).
5. Provide bank statements and profit & loss statements: 12–24 months of statements that corroborate income help especially when returns are older or disputed.
6. Include a CPA or tax pro letter: A short signed letter from your tax preparer or CPA explaining the tax situation and confirming income can be persuasive.
7. Work with a broker: Experienced mortgage brokers can match your file to flexible lenders and help navigate documentation efficiently.

Typical timelines: how long to expect

Exact timelines vary, but here are common scenarios and what they mean for your loan:

• Unfiled returns — file then wait: Filing back taxes and getting IRS transcripts can take 1–4 weeks (sometimes longer if the IRS is busy). Lenders usually need those transcripts before final underwriting.
• Filed but owe — set up a plan: Setting up an IRS installment agreement can be done in days online; lenders may ask for proof of 1–3 consecutive payments, adding 30–60 days depending on timing.
• Liens — resolve or document subordination: Removing or subordinating a lien can take weeks to months depending on the IRS and your lender’s policies.

Plan on an extra 2–6 weeks of underwriting time if tax issues exist — and more if the IRS requires manual processing.

Real borrower scenarios — what actually happened

Decision checklist: should you try for a loan now or wait?

Answer these questions honestly — they’ll help you choose the best path:

• Can you file missing returns within 1–4 weeks and obtain transcripts?
• Are unpaid taxes small relative to your available closing funds or savings?
• Can you establish an IRS installment agreement and make consecutive payments before closing?
• Is your credit score and DTI otherwise in a range lenders accept?
• Do you have access to a private lender for a short-term bridge if necessary?

If you answer "no" to most of these, it’s usually best to resolve tax issues first. If you answer "yes" to several, speak with a broker about non-QM or bank-statement programs.

Common lender questions — explained

How many years of tax returns do I need?

For conventional loans, underwriters often prefer two years of tax returns, especially for self-employed borrowers. FHA and VA may accept one year in limited cases, but two years is standard. For bank-statement programs, lenders can rely more on bank deposits than on tax returns.

Will unpaid taxes show up on my credit report?

Not directly. The IRS does not report tax debt to credit bureaus. However, if unpaid taxes lead to a lien, collection, or judgment that becomes public record, those events can appear on your credit report and lower your score.

What if the IRS files a Notice of Federal Tax Lien (NFTL)?

A Notice of Federal Tax Lien becomes a public record and can affect title. Lenders usually require resolution or a subordination to proceed on a purchase. Clearing liens often requires settlement, payment, or special arrangements coordinated with the IRS.

Alternative strategies when tax issues block conventional loans

If conventional financing is temporarily impossible, consider these options:

• Short-term private financing (hard money): Use a bridge loan to close quickly, then use sale or refinance to repay after resolving taxes.
• Lease-to-own or seller financing: In some markets sellers accept alternative arrangements while you clean up tax matters.
• Delay purchase and use time to file/pay: Paying down the tax bill and documenting progress may unlock lower-cost financing in a few months.

While these strategies can accelerate possession, they typically carry higher costs — weigh the financial tradeoffs carefully.

Action plan: 8 practical steps to increase approval odds

1. Inventory your tax situation: Identify unfiled years, balances due, and whether there are any liens or judgments.
2. File returns immediately: In many cases, filing late returns is faster than trying to qualify without them.
3. Pull IRS transcripts: Request transcripts for the past 1–3 years — lenders often request these directly via Form 4506-T.
4. Negotiate a payment arrangement: If you owe, set up an installment agreement and obtain written confirmation.
5. Make timely payments: Avoid missed payments; many programs ask for evidence of consecutive on-time payments.
6. Gather backup documentation: Bank statements, CPA letters, profit & loss statements, and W-2s help fill evidence gaps.
7. Work with specialists: Use a mortgage broker and a tax professional to package your case efficiently.
8. Consider alternative lenders if time-critical: Private or non-QM lenders can close faster albeit at higher cost — good for situations where timing matters more than price.

Following this plan will not guarantee approval, but it materially improves your odds and shortens the timeline for lenders to make a decision.

Final verdict — should you try now or fix taxes first?

The short answer: when possible, fix tax problems first. Filing returns and establishing a repayment plan reduces underwriting friction, often lowers your eventual rate, and increases the number of lenders willing to consider your file. But when timing is critical and the purchase opportunity is unique, alternative lenders and bridge strategies exist — just be prepared for higher costs and more paperwork.

If your taxes are minimal, filed but unpaid, and you can demonstrate on-time payments, you stand a good chance with FHA, VA, or some conventional lenders. If you’re self-employed, focus on bank statements and CPA documentation. If you have IRS liens, consult a tax attorney or CPA — lien resolution or subordination is often necessary for a traditional mortgage.

Frequently Asked Questions