IRS Installment plan

[seanf12]

Applying for an FHA loan, and it’s my understanding that if you have entered into an installment plan with the IRS, you had to have made at least three payments before you can apply for the mortgage.

My scenario is that I entered into a plan last year for my 2016 taxes, and have made all payments on time since. However, I just had my 2017 taxes added to the installment plan, and my payment will be increasing by $60 in June. Do I have to make at least three payments with this new amount before I can be approved?

From a DTI standpoint, even with the new payment amount I am still in good shape

Thanks!

[ShanetheMortgageMan]

If it's not a tax lien, FHA only requires a payment plan to be established and that payment amount will be used to calculate your DTI.  No payments are required to be made (unless there is a payment due).  So, if this is you, just get a copy of the new payment agreement + make any payments payments that are due on time and you'll be good.  Some lenders may have an overlay guideline requiring a certain amount of payments to be made, so make sure you address that early in the process so you know what to expect.

If you have a tax lien, then that is when FHA requires the payment plan + 3 months of payments to be made.

[seanf12]

Thanks for the reply, although I’m not sure that’s entirely accurate? Everything I have read states that if you owe Federal Tax Debt, you are required to have made at least three monthly payments...

[Anonymous]

I am also making payments on my 2017 taxes. I was told by my LO that I needed to make one payment and also show the installment letter. I think 3 payments aren’t required as I don’t have a tax lien (it’s the most recent year and I haven’t defaulted on payment). I think you’ll be fine.

[ShanetheMortgageMan]

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@seanf12 wrote:
Thanks for the reply, although I’m not sure that’s entirely accurate? Everything I have read states that if you owe Federal Tax Debt, you are required to have made at least three monthly payments...

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I'm 100% certain it's accurate, because the information I told you is taken directly from the FHA guidelines which you can read yourself at https://www.hud.gov/sites/documents/40001HSGH.pdf (page 136, or .pdf page 151).  You'll notice nowhere in the guidelines does FHA address tax liabilities that haven't turned into a tax lien, which is because FHA treats it just like any other delinquent installment debt that is owed.

I help other loan officers understand this information nearly daily and close loans all of the time under the same guideline.

[Anonymous]

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@ShanetheMortgageMan wrote:

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@seanf12 wrote:
Thanks for the reply, although I’m not sure that’s entirely accurate? Everything I have read states that if you owe Federal Tax Debt, you are required to have made at least three monthly payments...

---

I'm 100% certain it's accurate, because the information I told you is taken directly from the FHA guidelines which you can read yourself at https://www.hud.gov/sites/documents/40001HSGH.pdf (page 136, or .pdf page 151).  You'll notice nowhere in the guidelines does FHA address tax liabilities that haven't turned into a tax lien, which is because FHA treats it just like any other delinquent installment debt that is owed.

I help other loan officers understand this information nearly daily and close loans all of the time under the same guideline.

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+1

[me12345]

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@ShanetheMortgageMan wrote:

If it's not a tax lien, FHA only requires a payment plan to be established and that payment amount will be used to calculate your DTI.  No payments are required to be made (unless there is a payment due).  So, if this is you, just get a copy of the new payment agreement + make any payments payments that are due on time and you'll be good.  Some lenders may have an overlay guideline requiring a certain amount of payments to be made, so make sure you address that early in the process so you know what to expect.

I think that the confusion here is that MOST lenders and Investors have this "3 month re-payment plan" as an "Overlay" or requirement...If you are in this situation, you may have to do some searching for a lender that does not have these Overlays, be very clear in what you need when shopping for a lender.

Thanks,

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[Anonymous]

Does anyone know if this is also the case for USDA? We are currently losing sleep because lender just asked for proof that 2017 & 2016 taxes have been paid to $0 balance. We recently set up an automatic payment plan with IRS online but first payment has not been made nor billed for. LO says adding this monthly payment does not negatively affect DTI ratio but I am still very concerned. Any help or input is appreciated.

[Anonymous]

BUMP

[homeloanexpert]

When you have an installment agreement with the IRS, State, etc. to pay back taxes, as long as you have made your 3 payments then you are good to go. Now in your case, you ended filing your 2017 1040's owing a balance that you didn't or couldn't pay. So, you must have contacted the IRS and requested a modification. If you hadn’t done that, then your prior installment agreement would have been canceled because you are required not to have any unpaid tax liability for the next year filed. Good Job for staying on top of things.

So, to circle back around, you had an installment agreement in place, as long as you didn't miss any payments, and you can show your new installment agreement, then you are good to go. Why? Because after 30 years in the biz, I have come across your scenario many times. But if you're that worried about it, you can request a UW Pre-Approval to put your worries at ease. I do this when I have a really tricky file that even baffles my mind, or I have a borrower who is really worried and wants the added security of a real approval, not just a pre-qualification letter from Johnny Bananas Loan Officer.

NOTE: You may find that an UW will request a statement of account showing how much you owe.

Hope this helps! Best wishes to you!