Tax debt has a way of impacting every aspect of our lives. You may be in the market for purchasing a new home or having the home of your dreams built, but you are dealing with tax debt and feel that your dreams will never come to fruition. Solvable is here for you with a wealth of resources to help you formulate a workable plan that will allow you to turn your dreams into reality. You may have heard the phrase, “The best defense is a great offense.” This applies to tax debt as much as it does to sports.
We highly recommend that you maintain a firm hold on your taxes at all times. If you happen to find yourself in a situation where you can’t afford to pay your taxes one option that you have is an IRS payment plan (installment agreement). These plans have various options depending on your circumstances and carry related setup fees, accrued interest, and penalties. Finding a tax specialist to help you in resolving your tax issues is as easy as clicking this link.
You may think that being approved for a mortgage while presently being in an IRS payment plan will be impossible, but you would be mistaken. Fannie Mae allows for you to be approved for a mortgage while settling tax debt via an IRS payment plan. As long as you can satisfy the specific requirements they have set, Fannie Mae is here to help you become the happy owner of a new home. Fannie Mae’s approach to approving a mortgage based on these requirements can be a bit technical, so we will take a detailed look at what you need to know.
When looking to be approved for a mortgage, Fannie Mae will take the information you provide about your finances and determine your Debt to Income (DTI) ratio. The DTI takes into consideration your monthly debt and then compares it to your gross income. The DTI is a metric used by lenders to evaluate your ability to manage your monthly payments and repay debts.
Until recently Fannie Mae did not allow an IRS payment plan to be included in the DTI and required any delinquent tax debt to be paid in full prior to or at closing. This requirement no longer applies and allows for an IRS payment plan to be included as part of the DTI. To qualify for a mortgage with Fannie Mae while engaged in an IRS payment plan, you must satisfy a few conditions.
There can be no Federal Tax Lien filed against the potential borrower in the same county where the property in question is located. If a Federal Tax Lien is in effect, Fannie Mae will require you to have the delinquent taxes paid in full prior to or at closing even if you have an IRS payment plan in place. If there is no Federal Tax Lien to contend with, you will need to supply detailed documentation of the IRS payment plan to Fannie Mae.
The documentation Fannie Mae will need for you to provide is an approved IRS payment plan (installment agreement) stating your repayment terms, monthly payment amounts, and the total amount to be paid. You will also have to provide evidence showing that the IRS payment plan is current. This evidence must include the most current payment notice from the IRS detailing the amount of the last payment and the date paid, the amount owed in the next payment and the due date, and proof that at least one payment has been made before closing on the mortgage.
Some exceptions apply concerning payment plans (installment agreements), IRS payments plans included. These fall into the payoff or pay-down of debt section of the qualification process. One exception is when a payment plan is going to be paid in full or has been paid down to ten or fewer payments. Another exception is when a payment plan is going to be paid off before the closing of the mortgage, the account doesn’t have to be closed (as long as it is for sure closed before or on the closing date) and it is not included in the borrower’s long-term debt or DTI
Depending on where you stand in the process of paying back your debt to the IRS, you will have work to do to be prepared for applying for a mortgage with Fannie Mae. If you are ready to put in the work ahead of time and want to expedite the process of obtaining your Fannie Mae mortgage, the following steps will provide you with a head start:
Following these steps will have you prepared and ahead of the game when you apply for a mortgage with Fannie Mae. Being on the offensive by taking the steps necessary for approval despite having tax debt will reflect well on you with Fannie Mae as they evaluate your mortgage application. Stay strong and do what it takes to manage your obligations to the IRS.
Solvable is here to help you with your tax problems by providing knowledge and a proven platform for connecting you with the tax professionals you need. So take hold of your finances, cultivate a plan to manage your tax debt, get a mortgage application with Fannie Mae approved, and to turn your dream home into reality. Don’t hesitate; you’ve got this!