Can I Get an FHA Loan If I Am Making Back Tax Payments?
FHA loans are special types of loans subsidized by the Federal Housing Administration. FHA loans are still offered by conventional lenders, but have several benefits. FHA loan qualification requirements are easier to meet and the required down payment amount is very low, which makes it much easier for borrowers to afford a house even if they do not have a large amount of cash saved up. However, FHA loans are also subject to a certain number of rules regarding the borrower and property. Borrowers, for instance, may not qualify if they have back taxes.
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Back Taxes
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Back taxes are taxes that are owed to the government that have not yet been paid. They could be income taxes, but property taxes typically have the most impact when someone is trying to get a mortgage. Different debts have different levels of priority, and government debts always have the highest priority. This is why late taxes are such a serious problem when qualifying for FHA loans, and why the FHA program makes a specific mention of late taxes. If the taxes are unpaid, borrowers cannot qualify for the loan.
Payment Plans
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A payment plan is a plan created between the borrower and the government to pay back taxes in a series of installments, usually made by the month. This payment plan shows that the borrower is intending to pay off the taxes eventually and acts as a sign of good faith. If a payment plan has been made and the borrower can show proof of it, then the FHA will allow the borrower to continue and apply for the loan under the FHA guidelines.
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Full Explanation
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Because borrowers must still apply for FHA loans through conventional lenders, it can be helpful to explain the situation to the lender in question. The FHA suggests that borrowers submit a letter with their mortgage application explaining, in detail, the back taxes owed, the circumstances that led to the tax payment plan and how the payment plan will be completed. This will assure the lender that the borrower meets the necessary qualifications and makes it more likely that the loan application process will work smoothly.
Debt Rates
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The FHA also reminds borrowers that back taxes will count as debt on financial statements. This means that when lenders look at the monthly debts that borrowers have versus how much income they make each month, the taxes will count as a debt. This makes it more difficult for the borrower to qualify for as large a mortgage as they may otherwise be able to afford.
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