Owing money to the IRS is unsettling for anyone. It’s also very easy to find
oneself in that position. Many people are shocked to discover that they
inadvertently miscalculated the amount of taxes owed either at the end of
the year or from a previous year. There are also unexpected events that
can cause a tax event such as a windfall profit or inheritance.
Regardless of the cause, owing money to the IRS is no fun. If you are
considering a home purchase, you may be wondering how this will affect
your ability to do so.
If you owe back taxes to the IRS, most likely there is a tax lien. A tax lien is
a personal lien that is attached to the person and any property they own. A
tax lien takes priority over all other financial obligations, including a
mortgage. This puts the lender at greater risk since in the event of a
default, they would only be paid after the IRS lien was satisfied.
The good news is that although owing back taxes can make buying a home
more complicated, it does not prevent you from buying a home. First step is
to contact your lender and explain the situation. There are many reasons
people owe back taxes that do not make them a credit risk. You may be
able to either pay off the taxes or arrange a payment plan with the IRS that
will allow you to finance a new home. There are options, but being honest
with your lender is the first step so you understand your options.