As Duane Buziak explains, you can sometimes get a mortgage with tax liens, but the lien usually has to be paid, subordinated, or covered by a documented payment plan before or at closing. The loan type decides how strict the rules are. A borrower with an IRS installment agreement and a clean payment record often has a real path. A borrower who has ignored a lien and applied anyway usually hits a wall at underwriting.
The lien is rarely the end of the story. It is a sequencing problem: what has to happen first, what the lender needs to see on paper, and when to lock a rate. Get the order right and the lien becomes one more line item on the file. Get it wrong and you can lose weeks, or a contract.
What a Tax Lien Is and Why It Stops a Mortgage in Its Tracks
A tax lien is a legal claim against your property for unpaid taxes. There are three common types:
- Federal tax liens: filed by the IRS after an assessed balance goes unpaid. They attach to everything you own, including real estate you buy later.
- State tax liens: filed by a state revenue department for unpaid income or similar state taxes.
- Local property tax liens: placed on a specific home when property taxes go unpaid. These follow the property, not the person.
Why lenders will not close over one
A mortgage lender wants a first-lien position, meaning it gets repaid first if the loan defaults. Tax liens can jump that line. Property tax liens on the home being purchased commonly take priority over a mortgage, and a recorded federal lien can attach to the property the moment you take title. If the lien stays, the lender’s collateral is weaker than the loan assumes. That is why the usual answer is pay it, subordinate it, or prove an approved arrangement is in place.
How a lien shows up
Lenders find liens in three places: the title search ordered during underwriting, entries on your credit report, and your own disclosure on the loan application. The Consumer Financial Protection Bureau is a good general reference for how credit reporting works, and one detail matters here. The three national credit bureaus stopped reporting most tax liens in 2018.
That creates a common misconception: “My credit report is clean, so I have no lien problem.” A lien missing from your credit report can still be sitting in county or federal records, and the title company will find it. The credit report only tells part of the story, so check IRS account transcripts and a title search before you shop for a home or a rate.
Duane Buziak Explains How FHA, VA, and Conventional Loans Treat Tax Liens
The three programs agree on the principle and differ on the details. The table summarizes general guideline treatment. Lenders can add their own overlays, so treat it as a map, not a promise.
| Question | FHA | VA | Conventional (Fannie Mae) |
|---|---|---|---|
| Must the lien be paid in full? | Not always. Payment in full or an acceptable arrangement is generally required | Lien must generally be paid off or subordinated so the VA loan holds first position | Generally paid at or before closing, or handled through an acceptable payment arrangement and lender review |
| Is an IRS installment agreement accepted? | Generally yes, if payments are current and documented | Generally yes, with the plan reviewed by the lender and underwriter | Often yes, with documentation, but the lender decides how it treats the lien |
| Is subordination an option? | Yes, when the lienholder agrees to rank behind the new mortgage | Yes, same concept | Yes, when the lien will not sit ahead of the new loan |
| Does the payment count in DTI? | Yes | Yes, and it also reduces residual income | Yes |
| Typical documentation | IRS agreement letter, proof of on-time payments, payoff or balance statement | Same, plus residual income calculation | Same, plus title evidence of lien position |
The primary sources are HUD Handbook 4000.1 for FHA, the VA Lender’s Handbook for VA, and the Fannie Mae Selling Guide for conventional. Wording gets updated, so Duane Buziak confirms the current text on each file rather than quoting from memory.
For VA borrowers, two reminders. The Certificate of Eligibility can usually be pulled electronically with your Social Security number and date of birth, so there is rarely a need to chase paper. And if you have used entitlement before, second-tier (bonus) entitlement may still apply: multiply the county loan limit by 25% for the maximum guarantee, subtract the entitlement already used, and multiply the remainder by four to find the zero-down purchase limit.
Three Ways to Clear or Work Around a Lien Before Closing
1. Pay it in full
This is the cleanest route. Funds can come from savings, from gift funds where the loan program allows them, or, if you are selling a property, from sale proceeds paid through the title company at closing. Once the lien is released and recorded, it stops being an underwriting issue. Ask for a written payoff and a release, and keep both for the file.
2. Enter an IRS installment agreement
If paying in full is not realistic, an IRS installment agreement turns a lump sum into a monthly obligation. Lenders typically want the agreement in writing, proof that payments have been made on time, and the monthly amount counted in your debt-to-income ratio. How many on-time payments are required varies by program and lender as of 2026, so confirm the requirement for your loan type before assuming you qualify. Start the agreement early, because the payment history takes months to build.
3. Request subordination or discharge
When the lien must be addressed to close, the IRS can sometimes subordinate it so the new mortgage takes first position, or discharge the lien from a specific property. IRS Publication 784 explains subordination, and Publication 4235 helps you find the right IRS contact. Check IRS.gov for the current forms and instructions. Expect this to take weeks, and build that time into your contract dates.
The mistake that costs the most time
The most common error is applying for the mortgage before checking title and IRS account transcripts. The lien then surfaces mid-underwriting, with a closing date already ticking. Pull your transcripts, order a basic title check, and know your balance before you make an offer.
A Worked Example: How a $6,800 Lien Changes the Numbers
As Duane Buziak frames it, the order is: clear the lien, document the plan, then price the loan. Here is that framework applied to an illustration. Every figure below is illustrative, not a quote, and rates are assumptions as of 2026.
Suppose a buyer in North Carolina purchases a $360,000 home with an FHA loan and 3.5% down. The buyer has a $6,800 tax lien, gross monthly income of $7,800, and $570 in other monthly debts (car and cards).
- Down payment: $360,000 x 3.5% = $12,600
- Base loan amount: $360,000 – $12,600 = $347,400
- Upfront MIP (1.75%): $347,400 x 0.0175 = $6,079.50, which can be financed
- Total loan amount: $347,400 + $6,079.50 = $353,479.50
- Principal and interest: at an assumed 6.25% fixed over 30 years, about $2,176 a month
- Annual MIP: assumed 0.55%, about $162 a month
- Taxes and insurance: assumed $460 a month
- Total housing payment: about $2,798 a month
Confirm current FHA mortgage insurance rates and the 2026 loan limits on HUD.gov. The $347,400 base loan sits well under the 2026 FHA limit for most counties, and county limits are also tracked at FHFA.gov.
Option A: pay the lien in full
Assume $9,000 in closing costs and prepaids. Cash to close is $12,600 + $9,000 + $6,800 = $28,400. Total monthly debts are $2,798 + $570 = $3,368, so back-end DTI is $3,368 / $7,800 = 43.2%.
Option B: IRS payment plan at $190 a month
Cash to close drops to $21,600. But the $190 payment joins the debts: $3,558 / $7,800 = 45.6% DTI. At $190 a month, $6,800 takes roughly 36 months, and longer once IRS interest and penalties accrue. Whether 45.6% works depends on the automated underwriting findings and the buyer’s other strengths.
The trade is plain. Paying in full costs $6,800 more at closing and buys about 2.4 points of DTI room. The plan preserves cash but uses up borrowing capacity. Run both before you decide.
Duane Buziak Says Hunt Rates After You Fix the Lien, Not Before
Lien status changes both eligibility and pricing. A quote taken while the lien is open assumes a file that does not exist yet. Once the lien is paid, released, or under a documented plan, your DTI, reserves, and program options shift, and so can the rate and fees. A quote from before that point may not survive.
That is where the Rate Hawk philosophy, “We Don’t Just Look. We Hunt.”, fits. Duane Buziak works in four moves: Watch, Search, Compare, Move.
- Watch: track rates while you clear the lien, so you know what the market is doing.
- Search: run the same scenario through FHA, VA, and conventional options.
- Compare: look at the same loan across lender channels, on payment, fees, and cash to close.
- Move: lock when the file is clean and documented.
Watch. Compare. Save. The savings come from comparing a finished file, not an unfinished one.
You can start without a credit penalty. Mortgage Rate Hawk by Duane Buziak offers a free no-touch credit check and same-day return calls, so you can learn where you stand before any hard inquiry hits your score.
As a broker, Duane Buziak has direct access to wholesale pricing, including PowerTPO, the wholesale subsidiary of Lower LLC, with the same underwriters and no retail markup. That is about access, not a claim of lower rates. Large lenders such as Rocket, Movement, Lower, and Veterans United have real strengths, from digital applications to pricing transparency, and comparing a few channels on your actual file is how you find out what fits.
Ten Questions About Getting a Mortgage With Tax Liens
Can I get a mortgage with an IRS lien?
Yes, in many cases. The lien generally has to be paid, subordinated, or covered by an acceptable payment arrangement before or at closing. Your loan type and lender determine the exact conditions.
Does an IRS payment plan count toward qualifying?
Often yes. Lenders usually want the agreement in writing, proof of on-time payments, and the monthly payment included in your DTI.
Do tax liens show on my credit report?
Usually not. The credit bureaus stopped reporting most tax liens in 2018, but the lien still appears in public records and on a title search.
Is FHA or conventional better with a tax lien?
Neither is automatically better. FHA tends to be flexible on credit profiles, while conventional pricing can be stronger for borrowers with larger down payments. Compare both on your actual file.
Can a VA loan be used with a tax lien?
Yes, with conditions. The lien generally must be paid or subordinated, and any payment plan reduces residual income and raises DTI.
What is subordination?
Subordination is the lienholder agreeing to rank behind your new mortgage. That keeps the lender in first position even though the lien remains.
How long does a lien discharge or subordination take?
Plan on several weeks. Timing depends on the IRS, the completeness of your application, and the property, so request it as early as you can.
Can I refinance with a tax lien?
Sometimes. The same lien-position rules apply, and cash-out limits differ by program: VA cash-out refinances allow up to 100% LTV, while conventional cash-out is capped at 90% LTV. A refinance can also pay the lien off at closing.
Is a property tax lien different from an IRS lien?
Yes. A property tax lien attaches to the home itself and commonly takes priority over a mortgage, so it generally must be paid at or before closing. An IRS lien attaches to you and your assets.
Can gift funds pay off a tax lien?
Often, yes, where the loan program permits gift funds. The gift must be documented with a gift letter and a paper trail showing the source of funds.
Sequence the Lien First and the Mortgage Follows
A tax lien is a solvable problem when you handle it in the right order: confirm what is on title, clear or document the lien, then price the loan. Buyers get into trouble when they skip straight to rate quotes and learn about the lien halfway through underwriting.
Your dream home is waiting, and the mortgage process does not have to hold you back. Get your free rate comparison and personalized loan match today, with same-day expert guidance to help you find the right path forward, whether you’re a first-time buyer or ready to refinance. You can also call Mortgage Rate Hawk by Duane Buziak at 804-212-8663 for a free no-touch credit check and a plan built around your lien. Licensed in VA/FL/TN/GA/DC/NC/SC/MD.
