Can You Buy a House if You Owe Taxes?

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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You want a new home but worry you won’t get financing due to back taxes. This may not be the case, depending on how much you owe and the loan program you’re interested in. Furthermore, understand that your ability to qualify for a home loan will depend on the lender’s guidelines for prospective buyers with tax debt. So, you may not have to put your plans on hold. 

In this guide, you’ll discover how back taxes could affect your ability to purchase a home. You’ll also gain insights on which loan programs you should consider if you owe the IRS or your state taxing authority. 

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Get Out Of Tax Trouble

Get a free consultation with BBB Accredited “A+” rated Larson Tax Relief. With 15 enrolled IRS Agents on staff, they can help you with resolving your tax issues and moving on with your life.

Types Of Tax Debt Situations

Back Taxes Payment Arrangement

The IRS offers short- and long-term installment agreements to help consumers resolve unpaid federal tax debt. You may also qualify for a settlement through an Offer in Compromise. State tax authorities also offer payment arrangements that let you make monthly payments towards your balance until it’s paid off. 

Tax Liens

Tax liens are a UCC filing that is originated by the IRS or State taxing authority but is filed with the county clerk and recorder where you live or lived previously. It can be a red flag to lenders indicating that you’ve had trouble managing your obligations in the past. Consequently, lenders may turn you down if you have a tax lien, or may just charge a higher interest rate on the loan to offset the risk that you’ll default on your home loan. Still, you want to be transparent about your tax liens when applying for a home loan.

If possible, resolve your tax liens by paying off your back taxes before pursuing a mortgage. Or make sizable payments to demonstrate to the lender that you’re doing what you can to resolve the debt sooner than later. 

Tax Levies

Although the terms, tax liens and tax levies, are often (incorrectly) used interchangeably, they aren’t the same. A tax lien attaches to your property and gives the IRS the right to collect what they’re owed if you sell it. By contrast, a tax levy initiates a seizure of your assets by the IRS to settle your federal tax debt.  

Other Types Of Debt

Many states can seize assets to settle back taxes without going through an extensive due process. So if you have an unpaid state tax bill, you risk getting denied a home loan.

Can You Get A Conventional Mortgage If You Owe Taxes?

Unpaid tax debt doesn’t automatically prevent you from getting approved for a conventional mortgage. But the amount you pay the IRS each month will likely be included in the debt-to-income ratio (DTI), which could lower the loan amount you qualify for if you have several other debt obligations. The lender will also require proof that you’ve made the most recent payment on time as well as have the tax debt issue resolved through an installment agreement with the IRS. The payment plan usually needs to be well established, proving that it will both satisfy the debt, and is a monthly payment that is manageable by you. This way the lender knows that your monthly obligation to the IRS isn’t a mitigating factor in making your loan payment to the mortgage company.

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Get Out Of Tax Trouble

Get a free consultation with BBB Accredited “A+” rated Larson Tax Relief. With 15 enrolled IRS Agents on staff, they can help you with resolving your tax issues and moving on with your life.

Can You Get An FHA Loan If You Owe Taxes?

You could be eligible for an FHA loan if you owe taxes. However, the lender may manually underwrite your loan application and request documentation that provides details on your installment agreement with the IRS, along with proof that the last three payments were made on time. 

Can You Get A VA Loan If You Owe Taxes?

VA loans are available to borrowers with tax debt, assuming an IRS repayment plan is intact, and you’ve made timely payments each month for the past 12 months. It’s equally important that you disclose your tax lien when you apply (if applicable) and earn enough for your DTI ratio to remain at an acceptable level.

Can You Get A Mortgage If You Didn’t File Taxes?

When you apply for a mortgage, the lender will require tax return data (IRS Form 4506-T) before they’ll formally consider your request for a home loan. In turn, failing to file returns means you’ll likely be turned down for funding. Plus, you’ll be assessed a failure-to-file penalty by the IRS if you’re required to file a tax return but don’t.  

How a Tax Relief Company Can Help You With Buying A House

The good news is you can buy a house, even if you owe tax debt. But making the process as seamless as possible will require strategic planning on your behalf. This could involve working with a tax professional, like an Enrolled Agent at Larson Tax Relief, to make arrangements with the IRS or your state tax authority to resolve unpaid tax debt. Or they could advise you on the appropriate actions to prevent a federal tax lien from being filed, or how to get one removed if you are planning on buying a house in the future. 

If you’re interested in learning more about ways to find relief from your tax debt so you can buy a home, fill out the online form or call 833-833-4151 today for a free, no-obligation consultation.

Larson Tax Relief is an A+ rated Better Business Bureau (BBB) company with over 16 years of experience and 17 federally licensed enrolled agents on staff. They’ve served over 18,000 individuals and businesses in all 50 states, so you can have peace of mind knowing they have the expertise to assist you. 

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