Sometimes, a borrower may owe back taxes to the Internal Revenue Service (IRS); having an IRS installment agreement (or one still awaiting approval) does not automatically disqualify you from getting a mortgage. However, it does require specific underwriting calculations that we must apply to ensure an accurate debt-to-income (DTI) ratio.
Here’s how it works
When a borrower applies for an IRS Installment Agreement that is still pending approval, we must follow a prescribed methodology to determine qualifying payments.
The following documents and calculations are required:
- Provide a copy of the Installment Agreement Application – The application must clearly show the total amount of taxes owed and the required monthly payment terms.
- Use the larger of the two numbers in the DTI ratio
- the required monthly payment amount, or
- The amount of taxes owed is divided by 72 months (the standard 6-year period used for qualification).
By factoring the higher of the two amounts into a borrower’s debt-to-income ratio, we ensure the loan is responsibly underwritten, even before the IRS finalizes a repayment plan.
This calculation protects both borrowers and lenders. It ensures that future tax liabilities are realistically considered within your financial situation, helping you avoid surprises later on.
Our team is dedicated to navigating these unique underwriting scenarios. Please contact our office to learn more about our mortgage programs and guidelines.
