Can You Get a Home Loan If You Owe Taxes in 2025?
Practical, lender-tested guidance for borrowers who owe taxes and need a home loan in 2025. Learn what lenders check, your options, steps to improve approval odds, and when to use tax professionals.
Quick Answer (TL;DR)
Yes, you can get a home loan if you owe taxes, but it depends on the situation. Most lenders will approve your mortgage if you have a payment plan in place or if the tax debt is small relative to your income. However, unpaid tax liens or large outstanding balances can delay or prevent approval.
Key Takeaways
- • Payment plans with the IRS usually don't prevent mortgage approval
- • Tax liens must be resolved before closing
- • Small tax debts relative to income are often acceptable
- • Documentation and transparency are crucial
Why Taxes Matter to Mortgage Lenders
Lenders care about your tax situation because it affects your debt-to-income ratio, creditworthiness, and ability to repay the loan. They want to ensure you can handle both your mortgage payments and any tax obligations.
What Lenders Check
- • IRS payment plans and status
- • Outstanding tax balances
- • Tax liens on credit reports
- • Recent tax return filings
Impact on Approval
- • Payment plans: Usually acceptable
- • Small balances: Often overlooked
- • Large debts: May require resolution
- • Tax liens: Must be cleared
Three Tax Situations Lenders Treat Differently
1. Payment Plans (Installment Agreements)
If you have an active payment plan with the IRS, most lenders will approve your loan. The monthly payment is treated like any other debt and included in your debt-to-income ratio.
Good news: Payment plans show responsibility and don't typically prevent mortgage approval.
2. Outstanding Balances Without Payment Plans
Small outstanding balances (under $1,000) are often acceptable. Larger balances may require you to set up a payment plan or resolve the debt before closing.
Action needed: Consider setting up a payment plan or paying off the balance.
3. Tax Liens
Tax liens must be resolved before closing. This means paying the debt in full or negotiating a settlement with the IRS.
Critical: Tax liens will prevent loan approval and must be addressed immediately.
Steps to Improve Your Approval Odds
- Get current on payments — Set up an installment agreement with the IRS if you haven't already.
- Document everything — Keep records of all tax correspondence, payment confirmations, and agreements.
- Be transparent — Disclose your tax situation upfront to avoid surprises during underwriting.
- Consider timing — If possible, resolve tax issues before applying for a mortgage.
- Work with professionals — Consult with a tax professional and mortgage broker who understand these situations.
Real-World Examples
Example 1: Payment Plan Success
Sarah owed $15,000 in back taxes and set up a $300/month payment plan. Her lender approved her mortgage because the payment was included in her debt-to-income ratio and she had a stable payment history.
Example 2: Small Balance Overlooked
Mike had a $500 outstanding tax balance from the previous year. His lender didn't require resolution since it was small relative to his income and didn't affect his ability to repay the loan.
When to Seek Professional Help
Consider working with professionals if you have complex tax situations, large outstanding balances, or tax liens. A tax professional can help negotiate with the IRS, while a mortgage broker can guide you through the approval process.
Professional Resources
- • Tax professionals for IRS negotiations
- • Mortgage brokers experienced with tax issues
- • Real estate attorneys for complex situations
- • Financial advisors for overall planning
Conclusion
Getting a home loan while owing taxes is possible, but requires proper planning and documentation. The key is to be proactive, transparent, and work with professionals who understand both tax and mortgage requirements.
Key Takeaways
- • Payment plans with the IRS are usually acceptable to lenders
- • Small tax debts may not prevent mortgage approval
- • Tax liens must be resolved before closing
- • Documentation and transparency are crucial
- • Professional help can be valuable for complex situations
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