FHA Mortgage Loans and Unpaid Federal Debts (Including Taxes)

Here is a common type of question about applying for an FHA mortgage loan when you have owe a debt to the federal government:

"Can anyone tell me what the guideline for FHA loans regarding payment plan with IRS when you do not own property and you owe taxes? "

FHA loan rules here are basically concerned with giving lenders a yardstick to measure a borrower's creditworthiness with regard to federal debt--and that means that a lender is responsible for insuring the borrower is not delinquent on the payments of that debt.

Borrowers who are delinquent and are shown to be delinquent through the lender's due diligence are not eligible for an FHA mortgage loan until such time as they have corrected the delinquency to the satisfaction of the government. That does not necessarily mean the debt must be paid in full.

The FHA recognizes two types of circumstances--tax debt and non-tax debt.

For tax debt, the FHA states:

"Tax liens may remain unpaid if the Borrower has entered into a valid repayment agreement with the federal agency owed to make regular payments on the debt and the Borrower has made timely payments for at least three months of scheduled payments. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments."

When it comes to non-tax debt, FHA loan rules say, "In order for a Borrower with verified delinquent Federal Debt to become eligible, the Borrower must resolve their federal non-tax debt in accordance with the Debt Collection Improvement Act. The creditor agency that is owed the debt can verify that the debt has been resolved in accordance with the Debt Collection Improvement Act."

That information is found in HUD 4000.1 Section II Part A, under the heading, "Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt".

As you can see, this issue would be handled on a case-by-case basis and would likely need some discussion between the borrower and lender in order to move forward. A borrower in this situation may be asked to provide supporting documentation or other evidence to show a payment plan or other resolution has been established.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. It's designed especially for real estate websites--a widget that displays FHA loan limits for the counties serviced by those websites.

It is very simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget