How an Installment Agreement with the IRS Can Help You Buy a Home in 2026

The dream of homeownership doesn't have to vanish just because you have a balance due with the IRS. In 2026, the short answer is yes, you can buy a home while owing back taxes. However, federal lending standards have become increasingly precise. To get to the closing table, you must navigate a specific set of rules regarding payment history, debt ratios, and lien status.

Here is how an IRS Installment Agreement affects your mortgage approval this year.

1. The "Three-Month Rule" (FHA, VA, & USDA Loans)

For government-backed loans, simply having a payment plan isn't enough. According to HUD Handbook 4000.1, which governs FHA loans, you cannot qualify for a mortgage if you are "delinquent" on federal debt. An Installment Agreement moves you from "delinquent" to "current," but lenders require a track record of reliability.

• The Requirement: You must provide proof of at least three consecutive, on-time monthly payments under your agreement.
• The Catch: You cannot prepay these months to speed up the process. If you owe the IRS today and want an FHA loan, you need a minimum 90-day lead time to establish this history.
• Documentation: You will need a signed copy of your IRS Installment Agreement (Form 9465) and bank statements or transcripts proving the last three payments were made exactly as scheduled.

2. Debt-to-Income (DTI) Impact on Getting a Mortgage

When a lender calculates your Debt-to-Income (DTI) ratio, they aren't looking at your total tax debt; they are looking at the minimum monthly payment required by your agreement.

In 2026, if you cannot afford the standard 72-month "Streamlined" payment, you can apply for a Partial Payment Installment Agreement (PPIA).

• How it works: The IRS analyzes your actual income and expenses (using Form 433-A). If you have only $100 left over each month after basic living expenses, the IRS may set your payment at $100/month, even if you owe $100,000.
• The Mortgage Benefit: By lowering your monthly IRS obligation, you lower your DTI. This can effectively "save" your mortgage approval if your debt ratios were too high for a standard payment plan.
• The Trade-off: The IRS will almost certainly file a Notice of Federal Tax Lien (NFTL) as a condition of a PPIA to protect their interest while you pay a reduced amount.

Selling a Home with an Existing Tax Lien

While buying a home with tax debt is a matter of proving payment history, selling a home with an existing lien is a matter of equity. In 2026, the IRS expects to be paid from the proceeds of the sale.

The Equity Requirement

If you sell your home, the title company is legally required to pay off the federal tax lien before you receive a single cent of profit.

• If you have enough equity: The lien is simply paid at closing, and the IRS issues a "Lien Release" within 30 days.
• If you have NO equity (Short Sale): You must apply for a Lien Discharge (IRS Publication 783). The IRS may agree to "discharge" the specific property from the lien so the buyer can get a clean title, even if the IRS gets nothing from the sale.

The "Timing Trap"

A common mistake in 2026 is waiting until you are under contract to address the lien.

Warning: A Lien Discharge or Subordination request typically takes 30 to 45 days for the IRS to process. If your closing date is set for 30 days out and you haven't started the paperwork, the deal will likely collapse because the title company cannot clear the "cloud" on the title in time.