Can I Buy A Home If I Am Behind On My Income Taxes?
Can you still finance and buy a home if behind on taxes and other debts?
It is a complicated scenario. On one hand you know that purchasing a home and investing in real estate can be one of the best ways to get ahead financially. For many it may be the only option. On the other hand collections, charge-offs, past defaults, and back taxes can be perceived as a significant roadblock to this.
Fortunately, in reality these things may often not be an issue at all. So what might be in your way, what isn’t, and what are the best solutions?
Buying a Home with Bad Credit
Buying a home with bad credit may not be an issue at all. Small, older collections and charge-offs may not even have a significant impact on your credit score. Time can be the best healer in many cases. Many of those that have even gone through bankruptcy, car repossessions, foreclosure, and short sales may already qualify for great purchase mortgage deals.
Some mortgage lenders and loan programs can be more selective when it comes to more substantial collections and charge-offs. They may want the largest and newer ones satisfied or paid down. This could be a lot easier than you think. In fact, many collection companies will approach you to offer to settle for pennies on the dollar or to work out payment plans.
Buying a Home if Behind on Taxes
Income taxes can be a different issue. Depending on how behind you are, and how much you owe, it may not be reported to anyone, anywhere yet. In this scenario, you shouldn’t find any hindrances to either buy a home, or obtaining a purchase money mortgage.
However, a federal tax lien being reported on your credit report can make a big difference. This will scare off quite a few mortgage lenders. In general a federal tax lien means that the IRS can swoop in and garnish your income, bank accounts, and seize assets like real estate and resell them. Would you make a loan collateralized by a property which could be seized any day? What borrower would keep paying on a home loan they no longer own?
With this in mind, many would be home buyers may want to solve this issue first before buying homes in their own names. There may be some exceptions such as if 100% financing is possible. Common sense would suggest that if there is no equity the IRS wouldn’t seize it, as they shouldn’t have reasonable expectation of making a profit. If buying the property will help generate the money to pay off past taxes it may also make sense. And there are some states which attract many wealthy individuals from around the globe for their homestead protections which defend residences against debt collectors.
Fortunately, there are a number of fixes and solutions. Individuals with delinquent income tax obligations may be able to take advantage of installment payment plan options, or settle at substantial discounts under the Fresh Start program. Federal tax liens may even be removed from credit reports if they are inaccurate.