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Buying a House When You Have a Tax Lien or Judgment

How to Finance a Home When You Have a Tax Lien or a Court Judgement?

  tax lienWhen you have tax liens like from IRS, a state tax lien or a have a judgment from an old unpaid bill, the outcome is the same. Either of the two would block you from access finance for your new home.  A tax lien or a court judgment makes the financier come second to be paid behind the first creditors, the IRS or any lender.  With this situation, many lenders will shy away from financing your home.  Your lender will, therefore, advise you to pay all the tax liens and judgments.  This will clean your records and improve your credit scores for a mortgage or any other financing.   There are various other ways that can be used:
  1. Pay in cash –

    If you are in a position, assuming you have been saving for a while, you can acquire your home by simply paying for it in cash.
  1. Family, spouses & Fiances-

    Also commonly referred to as love money. This is money gifted by a spouse, parents, close blood family or a fiance. You can approach close family & introduce the idea of acquiring a home.  The idea is that your gift funds must not require repayment.  You may use this gift money to pay off tax liens and judgments.  Note that the gift money does not have to be the entire portion of your down payment & closing costs.  It may only be a small portion & that's ok.  It is worth trying.
  1. Disposing of all unused assets –

    Possibly you have assets accumulated over time.  Maybe some you use very seldom if at all.  This asset may still fetch a good price on the market.  You can sell the assets and raise the money for the new home.   Look around the house and the compound for any of these assets.  This may include that camping boat, vehicles or other appliances are just but a few examples.  Be sure if you do sell items to write up a bill of sale and have the buyer sign it.  You will need a copy for your loan file in the event that you make a large deposit into your bank account.  You must explain and document all large deposits on the last 2 months bank statements.
  1. Rent to own-
    This arrangement will allow you to rent the house as a tenant for purchase at a later date. Renting the home will allow you to save for down payment and have time to improve your credit scores. With this option, the owner selling you the home may require you to pay ‘option money’. Only a small portion of your rent may go into purchasing of the house.  This must be written in the contract.  Typically the lender will only allow amounts paid above typical monthly market rent. Therefore the rent paid may be slightly higher.
  1. Retirement Account -
    You can tap into your retirement account and borrow from IRA to purchase your first home. If you are married, your spouse can as well.
  1. Crowdfund - Is a public way to raise money for anything. Sites such as Hatch My House and Feather The Nest are examples that you can try. Remember the catch here is people’s perception about using their money for you to own a home.  If you are able to convince the public, then you can give it a try.
  1. Pay up tax liens and any other unpaid bills – Remember, it is prudent to clear with the IRS and other state taxes you owe. Though painful at present, it will improve your chances in the acquisition of the new home.  Cleared tax liens will likely improve your credit scores whereby making it easier to obtain lender approval.  This will make your dream home come true.
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