You can get a mortgage with a tax lien, but not without addressing it first. Depending on the loan type, that means paying the lien off at or before closing, persuading the IRS to step behind your new lender in priority, or (for FHA and VA loans) showing you’ve been making on-time payments under an installment agreement. Federal tax liens no longer appear on credit reports, but every lender will find yours during the title search, and no loan closes until the title is clear or the lien is formally handled.
Why the Lien Stops the Loan
When federal tax goes unpaid after demand, a lien attaches automatically to everything you own, including real estate.1Office of the Law Revision Counsel. 26 U.S. Code 6321 – Lien for Taxes It becomes visible to the world when the IRS files a Notice of Federal Tax Lien (NFTL) in county records. State tax authorities and county property tax offices file their own liens the same way.
The problem for a mortgage is priority. Under “first in time, first in right,” whoever recorded first gets paid first from any sale or foreclosure. A mortgage recorded after an existing NFTL sits in second place, behind the IRS.2Internal Revenue Service. IRM 5.17.2 Federal Tax Liens No lender will fund a home loan from second position. Property tax liens are worse: in most states they jump to the front automatically, ahead of everything else, which is why delinquent property taxes are an immediate underwriting disqualifier.
The second obstacle is title insurance. Lenders require marketable title, meaning no unresolved competing claims. A title company can’t issue a clean policy over an unsatisfied tax lien, and without that policy, closing doesn’t happen.
What About My Credit Score?
Tax liens stopped appearing on consumer credit reports in 2018. Under the National Consumer Assistance Plan, the credit bureaus removed all tax liens (paid and unpaid, federal and state) because the public records often didn’t contain enough identifying information to match reliably to the right person.3Consumer Financial Protection Bureau. Removal of Public Records Has Little Effect on Consumers Credit Scores No new liens have been added since.
Your FICO score isn’t the issue. The title search is. Mortgage lenders check public records directly during underwriting, and FHA guidelines require it.4HUD. FHA Single Family Housing Policy Handbook 4000.1 A clean credit report doesn’t hide a filed lien from the lender.
FHA Loans: Three Months of Payments
FHA loans are usually the most accessible option when you owe the IRS. Borrowers currently delinquent on federal tax debt are ineligible for FHA-insured mortgages under HUD Handbook 4000.1, with one important exception: if you’ve entered a valid repayment agreement with the IRS and have made at least three months of on-time payments, you can qualify.4HUD. FHA Single Family Housing Policy Handbook 4000.1
The rules are specific. You need three scheduled payments made when they were due; prepaying several months in advance won’t satisfy the requirement, because the FHA wants a real payment history. The monthly installment amount is included in your debt-to-income ratio, which can materially reduce the loan amount you qualify for. And you’ll need to provide the signed IRS installment agreement plus proof of the payments you’ve already made.
Large tax debts create a DTI problem. A standard installment agreement can produce a monthly payment big enough to push you past FHA’s ratio limits. One option is a Partial Payment Installment Agreement, where the IRS sets your payment based on what you can actually afford after basic living expenses. A lower monthly obligation means a smaller drag on DTI.
The lien itself stays on the property under this approach. FHA doesn’t require removal; it requires the debt to be actively managed.
VA Loans: Twelve Months of Payments
VA loans use a similar structure but demand a much longer track record. Borrowers with an IRS payment plan need to show at least 12 months of on-time payments before qualifying. The monthly payment counts toward DTI. If the outstanding balance exceeds 10 percent of the loan amount you’re requesting, the file may need additional approval. As with FHA, you must disclose delinquent federal debt on your application.
Conventional Loans: Pay It Off or Get Subordination
Fannie Mae and Freddie Mac are stricter. For a conventional mortgage the tax lien generally must be paid in full at or before closing, with a Certificate of Release recorded to clear title. There is no “three months of payments” workaround.
If a full payoff isn’t possible, the alternative is IRS subordination: a formal agreement letting the new mortgage take first position while the tax lien moves to second. Conventional underwriting won’t accept a payment plan by itself. Either the title clears, or the IRS agrees in writing to step back.
The Four IRS Options for Dealing With the Lien
The IRS offers four distinct remedies, and picking the right one depends on whether you’re paying off the debt, keeping it, selling the property, or trying to clean the public record.
Release: Full Payoff
Pay the debt in full and the IRS is required by law to release the lien within 30 days.5Internal Revenue Service. Instructions for Requesting a Certificate of Release of Federal Tax Lien The 30-day clock starts when the IRS receives certified funds (cashier’s check, money order, or wire). For personal checks, it doesn’t start until 15 days after receipt, so the check has time to clear.6Taxpayer Advocate Service. Release of Notice of Federal Tax Lien
If you’re paying the lien at closing with mortgage proceeds, the title company disburses the funds and then requests the release. The release still has to be recorded in county records to actually clear title. Coordinate the sequencing carefully so the new mortgage ends up recorded in first position.
Subordination: Letting the Mortgage Cut in Line
Subordination is often what makes a conventional refinance or purchase work when payoff isn’t realistic. The lien stays; the IRS just agrees to let the new lender’s mortgage sit ahead of it in priority.7Internal Revenue Service. Form 14134 – Application for Certificate of Subordination of Federal Tax Lien
The IRS evaluates requests under 26 U.S.C. ยง 6325(d) and generally wants to see that subordination either improves its ability to collect (for example, a refinance that lowers your rate and monthly payment) or leaves the government adequately protected by remaining equity. You apply on Form 14134, which asks for detailed financial information about the property, the proposed loan, existing encumbrances, and an appraised value. Expect the process to take several weeks. A subordination request filed the week before closing will almost certainly delay the loan.
Discharge: Freeing One Specific Property
Discharge removes the lien from one specific property while leaving it attached to your other assets. It’s the tool for someone selling a property when the buyer’s lender needs clean title, and it’s the option most borrowers don’t know exists.8Taxpayer Advocate Service. Lien Discharge
You apply on Form 14135. The IRS will consider discharge under several conditions: when your other property still subject to the lien is worth at least double the lien plus senior claims; when the IRS receives a payment equal to the value of its interest in the property being discharged; when its interest in that property has no value (an underwater property, for example); or when sale proceeds are placed in escrow subject to the IRS claim.9Internal Revenue Service. Form 14135 – Application for Certificate of Discharge of Property From Federal Tax Lien The application requires an appraisal from a disinterested third party and a copy of the deed. Denials can be appealed through the Collection Appeals Program.
Withdrawal: Erasing the Public Notice
Withdrawal goes a step beyond release: it pulls the NFTL out of public records entirely, as if it had never been filed.10Internal Revenue Service. Understanding a Federal Tax Lien Two paths, both using Form 12277:
After the lien has been released, you can request withdrawal if you’re current on all filing requirements for the past three years and up to date on estimated tax payments and federal tax deposits.
You can also request withdrawal while still paying the debt if you owe $25,000 or less, have converted to a Direct Debit Installment Agreement (DDIA), and have made at least three consecutive automatic payments. The DDIA must fully pay the balance within 60 months, or before the collection statute expires, whichever comes first.11Internal Revenue Service. IRM 5.12.9 Withdrawal of Notice of Federal Tax Lien If your balance is above $25,000, you can pay it down to the threshold and then apply. You can’t have defaulted on any prior DDIA, and you need to be current on all other filing obligations.
An Expired Lien Isn’t Automatically Invisible
Federal tax liens generally expire 10 years from the date the underlying tax was assessed. Once the Collection Statute Expiration Date passes, the lien self-releases, and the NFTL itself states the date this will happen unless the IRS refiles.
The catch is practical. Even after the lien legally expires, the old NFTL filing usually stays sitting in county records. A title search will find it, and the title company will flag it. You may still need to request a Certificate of Release from the IRS to formally clean the public record. Don’t assume an expired lien won’t affect your loan; get the paperwork.
Non-QM and Portfolio Lenders
If conventional and government-backed programs won’t work, portfolio and non-QM lenders write to their own underwriting standards. Some will fund with an existing tax lien, though they’ll typically still require subordination so they hold first-lien position. Interest rates run higher, and down payment requirements are larger, to price in the added risk. Hard money lenders are even more flexible on title issues but charge rates that only make sense for short-term investment deals, not a 30-year home loan. These options exist, but pursuing subordination or an FHA-qualifying installment agreement first is usually the better financial move.
What Happens at Closing
Once the lender approves your strategy, the title company handles the mechanics. What they need depends on the approach.
If you’re paying the lien in full at closing, the closing disclosure will itemize the disbursement to the IRS. The title company sends payment and requests the Certificate of Release for recording.
If you’re using subordination, the title company confirms the Certificate of Subordination is recorded before the new mortgage is recorded. The order matters, because the mortgage needs to be recorded after the subordination for the lender to end up in first position.
With an FHA or VA installment agreement, the title company verifies the payment plan documentation that underwriting has already approved. The lien remains on title, and the loan closes because the government program is willing to insure it anyway.
Review the closing disclosure with these details in mind. Confirm the payoff amount is right, funds are going to the correct taxing authority, and any subordination or discharge documents have actually been recorded (not just submitted). Title insurance coverage depends on your lender being in the priority position the loan requires, and a recording error at closing is expensive to fix later.