When we think about getting a mortgage and getting our credit scores in great shape to become an attractive borrower to lenders, we sometimes don’t think about the impact our tax situation may have on our ability to get in a new home. But there’s a very good reason to make sure your taxes are all in order before you try to see what your options are for home financing.
As Equifax experts explain in the new article, “Tax Questions: Can Unpaid Taxes Affect My Credit Score?” unpaid taxes can put a tax lien on your credit report. This tax lien shows up as a red flag when your credit report is pulled by lenders and can lead to a poor credit score – and you either not being qualified to borrow or qualified but at a higher interest rate than you would otherwise receive.
There are a couple of ways to get around the tax liens that are officially offered by the Internal Revenue Service. The first one is the Fresh Start program, which helps struggling taxpayers who owe money to the IRS through penalty relief, installment agreements, and offers in compromise. If you have paid off the balance, there is a way for taxpayers to have liens withdrawn instead of removed. Withdrawing a lien deletes it from your credit entirely, as if it never existed. Not everyone will qualify, but you can apply using an Application for Withdrawal (Form 12277).
Though there are ways around the lien once it is in place, it’s better to completely avoid it if you can. The full article has more information on techniques for this, and the Equifax Finance blog has lots more ways to save money and shore up your finances for homebuying, retirement and more – check it out today!