FHA Loans and Federal Debt
A question that we are frequently asked is: “Can I get a FHA loan with outstanding federal debt? The answer to this question boils down to the specific type of federal debt and it’s current status. There are two categories of federal debt, which includes either tax debts or non-tax debts.
All FHA lenders are required to check both your credit report and public records for tax liens. Additionally,when undergoing an FHA application review (essentially a screening process), lenders use what is called CAIVRS (Credit Alert Interactive Voice Response System) to view various credit matters, which includes federal debts and tax liens. This system specifically checks with all major federal agencies, such as the Internal Revenue Service (IRS), Federal Deposit Insurance Corporation (FDIC), Veterans Administration (VA), United States Department of Education (DOE), Department of Justice (DOJ), and Small Business Administration (SBA).
If you are inquiring about the FHA streamline refinance, mortgage lenders do not check your credit or look for tax debts for this loan. A check for federal debts only takes place for a new home purchase loan or a cash out refinance.
FHA Loans and Tax Debt Liens
For tax debt, as long as you have made a satisfactory payment plan with the IRS then it should not be an issue. Although, if you have outstanding federal tax debts (specifically liens), and have not made a payment plan this can prevent you from qualifying for any government-backed mortgage (including not only FHA, but VA and USDA loans as well). Also, if you have already initiated a payment plan with the IRS for your back taxes, but the status of your payments are delinquient, this can affect your FHA application from being approved.
This is the official FHA policy on tax debt:
“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.”
Also, anytime a lien holder is willing to subordinate the debt (meaning they take a “second place”, or are in “junior status” to be paid after the first lien), that can help your case. The feasibility of having the government subordinate the tax lien is hard to say. We do not provide any tax advice and recommend that you speak with an attorney for any tax related questions.
What if the liens are expired? If the tax liens are in expires status, but still reflected upon your credit report, it is the discretion of the underwriter to determine your eligibility.
FHA Loans and Non-Tax Federal Debt
If you owe non-tax debt to the Federal Government you will be required to pay it off in full prior to being able to obtain a FHA loan. The only exception to non-tax federal debt that does not have to be paid in full are student loans.
FHA Loans and Student Loans
The relationship between student loans and FHA loans has a few potential causes. For one, the payments on student loans will effect your debt-to-income ratios, which collectively must not exceed 43%. As long as you are current on your payments and your total debts are under 43% of your income, you should not have an issue qualifying (assuming you meet other FHA loan requirements). The issue you may face in not getting qualified is if you are delinquent on your student loan payments. This can cause your application to be denied.
If you are currently delinquent on your student loans, once you are caught up and can show 12 months of payments (paid on time) you will no longer be ineligible due to your prior delinquency.