27
Dec
By Mike Pfefferman
Tax Debts

How to Buy a Home if You Owe Taxes

If you’re considering buying a home while dealing with unpaid taxes, you might be wondering how your tax debt affects your mortgage approval. The good news is, it is possible to buy a home even if you owe taxes. Here’s what you need to know about how owing taxes can impact your homebuying process.

How Owing the IRS Affects Buying a Home

You might not need to wait until your tax debt is completely paid off to apply for a mortgage. It’s important to speak with a loan officer who can guide you through your options based on your specific financial situation. If you’ve been paying off your tax debt through a payment plan, be sure to let your loan officer know and provide supporting documentation and proof of payment.

Getting a Mortgage While You Owe Taxes

While paying off your tax debt isn’t always required before getting a mortgage, there are specific qualifications for mortgages when you have unfiled taxes or a tax lien.

How to Qualify for a Mortgage with Unfiled Taxes

When applying for a mortgage, you’ll need to provide the last two years of your tax returns. If your taxes are unfiled, you’ll need to file an extension with the IRS or your state government to remain eligible.

How to Qualify for a Mortgage with a Tax Lien

A tax lien gives the government a legal claim to your property due to unpaid taxes. Federal and state liens typically need to be paid off before closing to qualify for a mortgage. The IRS releases the lien within 30 days after the tax debt is paid in full.

Exceptions to the Rule

In some cases, exceptions are made for tax liens if you have a payment plan in place. These exceptions depend on the type of loan program.

Conventional Home Loan Requirements

  • Fannie Mae (FNMA): Requires you to pay off all past-due taxes, including any tax liens, in full before closing. However, Fannie Mae allows installment plans unless there’s a Notice of Federal Tax Lien.
  • Freddie Mac (FHLMC): If you have a tax lien, Freddie Mac requires it to be paid off or be under a repayment plan for at least three months. Payment history must be documented and included in your debt-to-income ratio.

Government Home Loan Requirements

Government-backed loans (like VA, USDA, and FHA) have more flexibility but still require you to resolve your tax lien situation.

  • VA and USDA: You must pay off tax liens in full or have a repayment plan for at least three months.
  • FHA: If your tax liens are delinquent, they must be current or part of a written payment agreement that’s included in your debt-to-income ratio. You’ll need to make at least three months of timely payments.

Does Owing Taxes Affect Mortgage Approval?

Tax debt won’t automatically disqualify you from getting a mortgage, but paying off your debt will increase your chances of approval. If you can’t pay off your tax debt in full, request an installment agreement and ensure you’re making timely payments.

23
Aug
By Mike Pfefferman
Home Buyer Tips

How to Transition from Renting to Homeownership

Transitioning from renting to homeownership is an exciting and significant milestone in anyone’s life. This journey, while thrilling, can also be filled with questions and uncertainties.  I am here to guide you through this process, ensuring a smooth and successful transition working with your real estate agent. We will discuss the steps you need to take to move from being a renter to a proud homeowner.

Assess Your Financial Readiness

First and foremost, evaluate your financial situation. Owning a home involves more than just a monthly mortgage payment. You’ll need to consider property taxes, homeowners insurance, maintenance costs, and potential homeowners association (HOA) fees.

Begin by:

  • Reviewing your credit score and history.
  • Saving for a down payment.
  • Establishing a budget that includes all potential homeownership costs.

Get Pre-Approved for a Mortgage

Next, obtaining a mortgage pre-approval is crucial. This not only helps you understand how much home you can afford but also makes you a more attractive buyer to sellers.

To do this:

  • Gather your financial documents (income statements, tax returns, bank statements).
  • Shop around for mortgage lenders to find the best rates and terms.
  • Submit your application and await your pre-approval letter.

Determine Your Needs and Wants

Before you start house hunting, it’s essential to define what you need and want in a home. Consider factors such as location, size, layout, and amenities.

Think about:

  • Proximity to work, schools, and amenities.
  • The number of bedrooms and bathrooms.
  • Whether you prefer a new or older home.

Start the House Hunt

Now comes the exciting part—searching for your new home. Your real estate agent can provide you with listings that match your criteria, schedule viewings, and offer insights into the local market.

While searching:

  • Be patient and keep an open mind.
  • Attend open houses and private showings.
  • Take notes and photos to compare properties.

Make an Offer

Once you’ve found a home that fits your needs and budget, it’s time to make an offer. Your real estate agent will help you craft a competitive offer that aligns with the market conditions and your budget.

When making an offer:

  • Consider contingencies such as inspections and financing.
  • Be prepared for negotiations.
  • Stay within your budget.

Navigate the Closing Process

After your offer is accepted, you’ll enter the closing process. This involves several steps, including home inspections, appraisals, and finalizing your mortgage.

During closing:

  • Schedule and attend the home inspection.
  • Review and sign all necessary documents.
  • Complete a final walkthrough of the property.

Move In and Enjoy

Finally, once all the paperwork is signed and the keys are in your hand, it’s time to move in and enjoy your new home! This is the moment you’ve been working towards, so take the time to settle in and make the space your own.

Tips for moving in:

  • Hire professional movers or enlist the help of friends and family.
  • Unpack and organize room by room.
  • Introduce yourself to your new neighbors and community.

Transitioning from renting to homeownership is a rewarding journey that requires careful planning and guidance. By following these steps and working with a dedicated real estate agent, you can confidently make the move and start enjoying the benefits of owning your own home.