There are many different types of debt that can show up on your credit report. Perhaps the worst debt to show up when you are applying for a mortgage is a federal tax lien.
When the IRS has put a lien on your home, it means that they have the first rights to the proceeds of your home; the mortgage lender does not. This puts your mortgage lender in 2nd place when it comes to having the debt paid off. This is not the situation that any lender wants to be in, which makes them very unlikely to provide a mortgage to anyone with a federal tax lien whether for a purchase or refinance.
Good news, the IRS has made efforts to help taxpayers with changes to their lien process. The announcement in relation to mortgage financing is that the IRS is willing to withdraw tax liens for taxpayers who owe $25,000 or less in tax liability, if a Direct Deposit Installment Agreement (DDIA) is set up. This means you can start one now, convert your existing installment agreement into a direct debit one, or if you are already in one then just call up and make a request to withdraw the tax lien. Of course it’s not instant in all situations as the IRS wants to make sure that payments will be honored so there is an initial probationary period.
In practicality, this means someone who has an IRS tax lien can improve their creditworthiness to a mortgage lender by opting to go into the DDIA and eventually having the IRS withdraw their tax lien. It doesn’t guarantee that someone who couldn’t get approved before will now be approved, but it is a huge step in the right direction.
If you have any questions or need help removing a lien, please feel free to give me a call, 615-326-TAX9.
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Stephen Wallick started Stephen Wallick & Associates to provide tax and accounting services to Contractors, Real Estate Investors, and Realtors. Steve specializes in IRS Tax Resolution services and works with his clients to resolve cases under scrutiny by the IRS. As a tax professional and enrolled agent, Steve can save you money with IRS loopholes each year. With over 20 years going up against “The Man”, Steve is uniquely qualified to resolve even the toughest IRS cases.