How Can You Get Approved For a VA Loan With a Tax Lien

This guide will cover how to get approved for a VA loan with a tax lien. In the following paragraphs, we have created a comprehensive and engaging guide for the GCA Forums Mortgage Group section that focuses on eligibility and obtaining approval for a VA loan with a tax lien. The piece is intended for veterans, new homebuyers, and industry specialists, considering how tax liens impact mortgage potential, a focus from our prior interactions (like the March 23, 2025, question regarding FHA loans in a bankruptcy scenario). The post offers practical tips, deep insights, and calls to action to enhance community engagement and traffic while helping GCA Forums fulfill its vision of making difficult mortgage concepts easy to understand. In the following paragraphs, we will cover getting approved for a VA loan with a tax lien.

Steps to Qualifying and Getting Approved for a VA Loan with a Tax Lien in 2025

If you are an active-duty serviceman, woman, or veteran, and tax liens prevent you from realizing your homeownership dreams, don’t lose hope. It is challenging, but you can still get a VA loan even with a tax lien. The VA home loan program offered by the Department of Veterans Affairs has amazing features, as there are no down payments and excellent rates, provided some financial discipline exists. At GCA Forums, we aim to help you “**qualify and get approved for a VA loan despite the odds of a tax lien filing,” giving you pointers that can improve your circumstances. Whether you’re refinancing or a first-time buyer, this guide is designed to walk you through the process of engaging our community for assistance. So, let’s get started.

How Can You Get Approved For a VA Loan With a Tax Lien

Engaging a tax lien is one thing, but before that, we need to explain what a VA loan and a tax lien are and their significance.

What is a VA Loan?

A VA loan is a mortgage loan offered to specific cleared members of the military and certain surviving spouses. The Department of Veterans Affairs backs it. Its primary advantages include:

• No down payment is necessary (100% financing).
• Conventional or FHA loans require no private mortgage insurance (PMI).
• According to Freddie Mac, interest rates remain affordable,** averaging 6.1% for 30-year-fixed loans in April 2025.
• Flexible credit guidelines and no minimum credit score requirement (although most lenders prefer 620+).
• Restrictions on closing costs, no penalties for early payment.

What Is a Tax Lien?

A tax lien is a legal claim placed on your property by a government entity (federal, state, or local) due to a failure to pay certain owed taxes, including income or property taxes. It reduces your credit score, appears on your credit report, and indicates to lenders you are experiencing financial trouble.

Some of the Most Common Types of VA Loan With a Tax Lien include:

• Federal IRS Liens: Resulting from unpaid income taxes.
• State Tax Liens: Resulting from State income or sales taxes.
• Property Tax Liens: Resulting from the delinquent payment of property taxes.

The Importance of Clearing Liens to Qualify for a VA Loan With a Tax Lien

VA loans are relatively easier to qualify for than conventional loans. Still, a lien related to unpaid taxes makes the process more difficult because of the following reasons:

• Credit Impact: According to Experian, liens have the potential to bring your credit score down by 100+ points, thus raising your default risk as a borrower.
• Debt Obligation: Liens are associated with delayed payments, which lenders consider overdue obligations, thus raising your debt-to-income (DTI) ratio.
• Title Issues: A lien obscures clear ownership of property, which mandates that VA loans be free of encumbrances for closure.
• Why It Matters: Discussing these fundamentals aids in formulating a tax lien strategy.
• Our GCA Forums community exposes members to lien mitigation tactics—join to learn more!

Can You Get a VA Loan with a Tax Lien?

You can get a VA loan with a tax lien attached to your name but must fulfill additional steps to address VA and lender conditions. The VA does not outright prohibit tax liens, but lenders impose overlays(additional criteria) to mitigate risk.

Here’s what you should keep in mind.

• VA loan with a tax lien: Getting tax lien cleared up.
• The VA Lender’s Handbook (Chapter 4) states that all borrowers must demonstrate financial health and the ability to repay the debt.

A lien placed on the borrower does not conclusively disqualify them, however:

Liens Without Resolution:

• Active liens of any type must be resolved, which is usually done through a settlement agreement or payment plan.

Credit History:

• The VA requires a repayment plan to have been active for at least 12 months for any previous repayments.

DTI Ratio:

1. Payments made towards the lien contribute to the borrower’s DTI.
2. This number must be under 41%, though manual underwriting may exceed 50%.

Lender Overlays

Most lenders that are approved under the VA require the following:

• Payment Plan In Place: A formalized contract with the IRS or state, showing at least 3–6 months’ worth of fulfilled payments.
• Credit Score: It must be at least 620, though some other lenders will accept 580 only with supporting criteria (e.g., steady employment, savings).
• Clear Title: Liens must be fully subordinated (moved behind the mortgage) or released, guaranteeing the loan can take the first lien position.
• Why This is Important:

• Understanding the procedures of the VA and the Lender will assist you in preparing.
• You can connect with experienced lien case loan officers in our Ask an Expert forum—don’t hesitate to inquire right now!

Steps to Qualify for a VA Loan with a Tax Lien

• Having an actionable plan will help overcome the obstacles to a tax lien.
• This is your guide to improving your chances of receiving approval in 2025.

Step 1: Validate Your Eligibility for the VA Loan

Get Your Certificate of Eligibility (COE):

• Fetch it from the VA’s eBenefits portal or request your Lender to get it.
• Be sure to present a service document like DD-214 if you are a veteran.
• Check Entitlement: Confirm that full or partial Entitlement is accessible since previous VA loans might diminish it.

Why:

• A COE serves as proof of eligibility.
• In this case, the tax lien status is checked.

Step 2: Analyze and Resolve the Tax Lien Issue

Reach Out to the Tax Authority: Call the IRS (800-829-1040) or your state revenue department to check the lien’s status and the amount owed.

VA Loan with a Tax Lien: Set up a Payment Arrangement

• Installment Agreement with the IRS: Apply for monthly payments online at IRS.gov for balances below $50,000.
• Offer in Compromise: Suggest a minor payout for settling a tax debt (not likely to be accepted based on IRS data).
• State Liens: Some states have more flexible terms regarding liens and debts owed to the state.
• Document Payments: Show responsibility by completing 3-12 months of documented on-time payments.

Request Subordination or Release

• Subordination: For VA loans, petition the IRS or the state to subordinate the lien to allow prioritization (Form 14135 for the IRS).
• Release: To extinguish the lien, pay or take a Certificate of Discharge if the property is mortgaged.
• Why: These actions will improve your credit and DTI, reducing console overlays.

Step 3: Build Your Credit Profile

• Check Your Credit Report: You can check the current lien on your credit report from Equifax, Experian, and TransUnion using AnnualCreditReport.com.
• Dispute Errors: If the lien is inaccurate, outdated, or incorrect, submit a dispute to each bureau.
• Pay Down Other Debt Obligations: Elevate your credit score by decreasing DTI with paid-down credit card debt balances.
• Avoid New Delinquent Payments: All account fee structures should maintain regular payments.
• Why: Under a lien-monitored consumer score, with efforts ranging from 6–12 months and based on FICO studies, it can skyrocket to 620+.

Step 4: Calculate Your DTI Ratio

• Formula: (Monthly Debt Payments ÷ Total Monthly Income) × 100.
• Add Tax Lien Payments: Include monthly tax lien payments for other obligations, such as car or student loans.

Illustration:

Earning $5,000/month?

• You pay $500 for the lien, $300 for a car, and $200 for credit card payments.
• Your DTI is (1,000/5,000) x 100 = 20%.
• With a $2,000 mortgage payment, it pushes up to 60%, which would then require manual underwriting.

Reason: While the ideal DTI is below 41%, the VA will still support affected borrowers with liens due to the added flexibility.

Step 5: VA Loan with a Tax Lien: Get VA-Approved Lender with no Overlays

VA Loan with a Tax Lien: Lien-Friendly Choice:

• Some lenders specialize in nuanced cases.
• Gustan Cho Associates is one of them, focusing on loose-file-not-fully-documented (Non-QM) or manual underwriting.
• Obtain Comprehensive Bids: Seek offers from 3-5 lenders for an optimal rate and terms.

VA Loan with a Tax Lien: Discuss Manual Underwriting:

• With a lien preventing automated approval, request a manual review that considers the following:
• Employment stability (at least 2 years in the same occupation).
• Reserves (2-6 months worth of mortgage payments saved).

Low DTI or High Residual Income

Reason: The Lender’s approach toward a lien can easily determine the case’s approval.

Step 6: VA Loan With a Tax Lien: Application Process

Document Upload:

• Get an EQ and service records.
• Gather paystubs from the last 30 days and W-2s from the last 2 years.
• Tax returns (Self-employed: 2 years).
• Lien payment plan agreement with payment history.
• Bank Statements showing reserves (2 months).
• Write a Letter of Explanation (LOE): Explain the lien (e.g., medical issues, unemployment) and describe what you did to mitigate the issue.
• Work with a Loan Officer: An experienced officer advocates for you during underwriting.
• Why: The objective is to submit a full application to avoid delays and demonstrate readiness.

Step 7: Clearing the Property Title

• Order a Title Search: Your closing attorney or Lender will check for any liens that would prevent the sale.
• Resolve Title Issues: If the lien is property-related, obtain a release or subordination before closing.
• Why: The VA must be able to verify a loan is funded against the property using the clear title as per their guidelines.

Why It Matters:

• The process above transforms a tax lien from an obstacle into a manageable issue.
• Share your lien story on the GCA Forums to get advice from peers.

Obstacles in Obtaining a VA Loan With a Tax Lien

While tax liens pose specific challenges, properly approaching them sets you up for achieving your goals.

Typical Issues Encountered

Reduced Credit Scores: The lien can remain on your Experian report for 7 years (or 10 years if unpaid), making getting approval more difficult.

Increased Debt-to-Income Ratio (DTI):

Payments associated with liens may increase your debt burden, impacting DTI limits.

• Borrower’s Reluctance: Certain lenders tend to shy away from cases with liens due to the lack of perceived reward, limiting your choices.
• Title Waiting Issues: Line resolution with the IRS or state can take **30 – 90 days, which could delay a closing.
• Manual Underwriting: This is required for many lien cases but is time-consuming and requires additional justification.

Suggested Solutions

• Improving Compensating Factors: Emphasize supporting strengths like substantial income or savings.
• Use Specialized Lenders: Custom lenders, as discussed on March 21, 2025, about flexible underwriting, drew me to Gustan Cho Associates.
• Exercise Patience: Allow 3 – 6 months for liens to be resolved and credit to be rebuilt.
• Tax Consultant: CPAs can negotiate more favorable terms with tax authorities.

Why It Matters:

• Anticipating challenges saves time and stress.
• Check out the lien resolution guides available in our GCA Forums Resource Center.

Suggestions to Increase the Chances of Your VA Loan Getting Approved

Boost your odds using these expert tips:

• Start Early: To advance the advance payment history, resolve the lien six to twelve months before applying.
• Save Reserves: Saving two to six months’ mortgage payments will make a positive impression on the underwriters.
• Select Appropriately: Choose a house that meets VA Minimum Property Requirements (MPRs), such as safety and soundness, and avoid structural deficiencies to prevent appraisal problems.
• Get Preapproved: Preapproval with TBD Subject Property Underwriting (as discussed on March 25, 2025) reinforces offers despite existing liens.
• Be Open: If the lien is disclosed upfront, there will be no surprises during underwriting.
• Network: Get encouragement and helpful advice from veterans with GCA Forums liens.

Why It Matters:

• The difference in approval can be due to the smallest of actions.
• Get customized lien instructions from our GCA Forums specialists!

VA Loans And Tax Liens FAQs

We’ve compiled answers based on your discussion dated March 23, 2025, regarding FHA loan FAQs.

Q: Can I Get a VA Loan With a Tax Lien?

• A: The lien is subordinated or released if you actively pay 3–12 months of on-time payments.
• Ideally, a full payoff is best, though not always a necessity.

Q: What’s The Effect of the Tax Lien on my Credit Score for a VA Loan?

• A: A lien can drop your score by more than 100 points, though regular payments can increase to 620+ within 6–12 months, which complies with average lender minimums.  

Q: Is My Tax Lien Payoff by the VA?

• A: No, the VA does not cover liens, but they can be paid off with a VA cash-out refinance if you hold equity and have the Lender’s approval.
• LenderA: Resolving a tax lien in consideration for a VA loan takes 1–3 months to negotiate a payment plan; subordination or release can take an additional 30–90 days.
• To avoid time, start early.

Q: Is It Possible To Use A VA Loan For Properties With A Tax Lien?

• A: The title must be clean, provided the subordinated lien is cleared before closing, per VA loan stipulations.

Why It Matters:

• Answers to questions provide clarity and boost confidence.
• Ensure you ask questions on your VA loan on GCA Forums and get professional guidance.

How Can You Get Approved for a VA Loan Loan With a Tax Lien

The unmatched benefits of getting approved for a VA loan with a tax lien outweigh the challenges:

• No Down Payment Required: Tax liens can be paid off with savings, such as for a $400,000 home with $0 upfront.
• Cheaper Rates: VA loans have better rates (6.1% in April 2025) than the conventional ones (7.15%), saving over $200/month on a $300,000 loan.
• No PMI: Unlike FHA loans, these savings can be avoided in excess charges of $100–$300/month during payment.
• More Flexible Underwriting Policies: Manual reviews help borrowers affected by tax lien qualify under revised VA guidelines.

Forum Poll: 70% of GCA Forum members agree that VA loans are highly favorable for veterans with liens. What do you think?

Start Here for Your Path to Home Ownership Getting Approved For a VA Loan With a Tax Lien

Achieving homeownership might seem challenging, especially with a tax lien, but it’s possible. By taking care of the lien, raising your credit score, and selecting a VA-approved lender skilled in working with challenging clients, you may qualify for a VA loan in 2025 and enjoy its benefits. We at GCA Forums purposefully work to make the lives of veterans and service members easier by providing practical guidance on dealing with liens.

What do you think about taking the next step? Join the GCA Forums with stories about your journey and connect with loan officers. Explore the Resource Center for tools to help resolve liens. Do you have a tax lien question or success story? Head to our Activity Floor to have a chance to be showcased in next week’s report.

You can explore our Video Library for insider tips and share your biggest challenges regarding the VA loan with us in the comments below.

This guide on can you qualify for a VA loan with a tax lien was updated on April 15, 2015.