In the 2025 fiscal year, the IRS brought in $117.5 billion from previously unpaid taxes that taxpayers still owed. During this same year, taxpayers submitted 38,797 offers in compromise to settle their tax debt for less than what they owe. The IRS accepted 5,464.
The IRS offers different payment plans for people who cannot pay all their tax debt at once. People who owe $50,000 or less in total, including taxes, penalties, and interest, can usually set up a simplified payment plan.
A payment plan can help limit collection action, but it doesn’t answer every question. One such question stands out. Can you buy a house if you owe the IRS? The answer is often yes, but expect some complications. People who have tax debt might be disqualified from a mortgage. This scenario is especially true if the IRS files a federal tax lien against you.
A federal tax lien gives the government a legal claim against your property as security for the tax debt. This includes property that a taxpayer may obtain after the lien has been issued.
Owing the IRS doesn’t automatically rule out buying a house, but it does complicate getting and completing a mortgage.
How a Lender Actually Finds Out
Some buyers hope unpaid tax debt won’t come up, but it usually surfaces during underwriting. Since 2018, tax liens have not appeared on credit reports, so mortgage lenders rely on public records and conduct title searches to locate them.
Many lenders require you to submit at least a couple years of your previous tax returns. Some may even require you to sign an authorization form that allows them to contact the IRS to verify your tax information. Lenders also review your tax status and look for liens as part of the underwriting process, so any tax liens against you personally or your property will likely come to the attention of the lender.
If a home purchase went through without a lender knowing about existing tax debt, the IRS could, in theory, still pursue that property later. This situation is precisely the risk lenders are trying to avoid by checking in the first place.
Getting Right With the IRS Before Applying
It’s usually best to start by finding out exactly what’s owed before making arrangements with the IRS.
A payment plan alone doesn’t guarantee approval, since some lenders still decline applicants carrying substantial tax debt regardless of payment status. Still, for most buyers who can’t pay the balance in full, it’s the first step.
Income verification adds another layer of difficulty. Someone who hasn’t filed returns, or who has a large amount of unreported income, will struggle to document the earnings a lender needs to see.
For smaller debts, the most efficient approach is to obtain a formal payoff amount from the IRS and settle the debt. Ideally, do this before applying for a loan, and keep proof that the debt is cleared.
When it comes to bigger sums of money, a more flexible option may be setting up an offer in compromise or a repayment schedule. Both require extensive documentation to be submitted for review to the IRS, so it is always a good idea to consult a tax professional. Doing so will minimize the chances of any errors that could give the IRS reason to reject an application.
FHA and USDA Loans Offer More Flexibility Than Conventional Financing
Government-backed loans are more forgiving of tax debt than conventional mortgages. That doesn’t mean anything goes, though. They still have specific requirements a borrower has to meet.
FHA guidelines, laid out in HUD’s Single Family Housing Policy Handbook, allow a borrower with a federal tax lien to remain eligible as long as they’ve entered into a valid written repayment agreement. The guidelines also stipulate that the borrower must have made three months of actual, timely payments under that agreement. Payments must elapse over time rather than being made all at once to satisfy the requirement early.
The monthly payment amount still gets factored into the borrower’s overall debt-to-income calculation, so the debt doesn’t disappear from the underwriting picture even once the three-payment threshold is met. USDA loans use similar requirements. These loans are targeted at individuals looking to buy homes in approved rural areas.
When helping clients who are dealing with tax debt, a Southlake tax debt lawyer will first determine the client’s current standing with the IRS. The types of debt and the duration of the payment plan are factors that help determine which loan options, if any, are available.
Why Timing the Application Matters
All of these do not imply that tax debts cannot be overcome, and many people go ahead and purchase their property even while they are still repaying the tax debts. But timing is everything.
Applying too early, before a repayment agreement has been in place long enough to meet a lender’s requirements, often leads to a denial or a delay.
Planning Ahead Makes the Difference
Government guidelines set a standard, but many lenders add their own restrictions. No mortgage path is 100% safe.
But the pattern holds regardless of which loan program eventually applies. Buyers who take their tax situation seriously, set up a plan, and keep records of their payments tend to be better off.
Handled months before the mortgage application, a tax issue is usually manageable. But when discovered midway through underwriting, it can derail the deal.