Q: I have a tax lien. I’ve been in a payment plan for the past year. Will this prevent me from buying?
A: The short answer is "no.”
The tax lien shouldn't prevent you from buying a home, unless the IRS is required to be in a first-lien position against your prospective home.
While the FHA program will probably be the easiest avenue available to you, you could also consider a loan guaranteed by Fannie Mae or Freddie Mac.
Fannie, Freddie guidelines
Fannie Mae states in their underwriting guidelines that:
"Open judgments, garnishments and all outstanding liens that are in the Public Records section of your credit report will be identified in the Underwriting Findings report, and must be paid off prior to closing."
This of course includes tax liens.
With regard to the FHA program, HUD regulations state that:
"The borrower is not eligible until the delinquent account is brought current, paid or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing." They continue, "Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage." HUD further states that, "If any regular payments are to be made, they must be included in the qualifying ratios."
A commitment against your income
At the very least, the lien repayment plan does represent a commitment against your income, so the amount of mortgage you can qualify to borrow will of course be affected.
In turn, this affects whether or not there are any homes for sale in a location in which you hope to buy that are affordable despite this impairment of your income.
As such, you are not prevented from buying, but when all is said and done, there may or may not be anything which you are interested in buying or can qualify to buy.
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.