Up til a few days ago working with a borrower on a conventional loan who has an active IRS repayment plan meant a decline was probably going to be the result from underwriting. From time to time people underestimate their tax liability when April 15th rolls around and must work out a payment plan to the IRS to get their taxes paid.
When this prospective borrower shows up ready to buy a home, this IRS debt may seem like any other debt to the mortgage applicant. However in the mortgage world this is a serious problem that needs to be dealt with. The solution in the past was to offer a government loan, such as FHA, since FHA has allowances for borrowers in IRS repayment plans to still be approved. But FHA is not always the best route for borrowers with higher credit scores and larger down payments, or of course buying a second home or investment property is not an option on these government loans.
Good news to go with tax time! With FNMA’s change on 01/30/2018 noted on SEL-2018-01 conventional loans now have a new option to help a borrower get approved on a mortgage. FNMA’s latest update for B3-6-05 now allows for repayment plans on these IRS tax arrangements, that are fairly easy to qualify for: Here is the guideline from AllRegs!
“When a borrower has entered into an installment agreement with the IRS to repay delinquent federal income taxes, the lender may include the monthly payment amount as part of the borrower’s monthly debt obligations (in lieu of requiring payment in full) if:
There is no indication that a Notice of Federal Tax Lien has been filed against the borrower in the county in which the subject property is located.”
I put that second part of guideline in RED since that part is key to using this new guideline. What is basically saying is if your prospective borrower went to the IRS to make an arrangement, before the IRS went to your prospective borrower to collect these taxes, this may work out!
One more piece of good news, is that the borrower only has to have made one payment prior to closing, versus the three month requirement from FHA. This may be just the ticket you need to approve your soon to be homeowner!
We invite you to take a look at our Mortgage Underwriter Training program. We offer full training from start to finish along with monthly webinars will keep you up to date on these changes. Don’t get caught of guard, or lose a loan over a changing guideline! We are only a few weeks away from launching send us an email at firstname.lastname@example.org in the subject line say “Tell Me About The Training” and will put you on our email blast with the details.