Sometimes, a borrower may owe back taxes to the IRS; having an IRS installment agreement (or one that’s still pending approval) doesn’t automatically disqualify you from getting a mortgage. However, it does require specific underwriting calculations that we must apply to ensure accurate debt-to-income (DTI) ratios.
Here’s How It Works
When a borrower has applied for an IRS installment agreement that is still pending approval, we must follow a defined approach to determine the qualifying payment.
The following documentation and calculations are required:
- Provide a copy of the installment agreement application – This application must clearly show both the total amount of taxes owed and the requested monthly payment terms.
- Use the greater of two numbers in the DTI ratio
- The requested monthly payment amount, or
- The amount of taxes owed is divided by 72 months (a standard 6-year term used for qualification purposes).
By including the higher of the two amounts in the borrower’s debt-to-income ratio, we ensure the loan is underwritten responsibly, even before the IRS finalizes the repayment plan.
This calculation protects both the borrower and the lender. It ensures that future tax obligations are realistically accounted for in your financial profile, helping you avoid surprises later.
Our team specializes in navigating these unique underwriting scenarios. Contact our office for more information about our mortgage programs and guidelines.
