Judgments and liens affect your mortgage qualification but are not automatic disqualifiers. The required action depends on the type and amount.
Most lenders require judgments to be paid off or have a payment plan in place before closing. Tax liens: must have a payment plan with the IRS.
Federal tax liens are more serious than state or local liens. Each lender has different policies, so shop for one experienced with your situation.
Judgments
A judgment is a court order to pay a debt. Most lenders require judgments to be satisfied (paid) before closing. Some allow payment plans with proof of consistent payments.
Tax Liens
Tax liens: federal tax liens are the most serious. Must have a payment plan with the IRS and be current on payments. State tax liens also need resolution before closing.
Payment Plans
Payment plans must be verified. You need: the agreement showing the payment amount, proof of the first payment, and a history of on-time payments (usually 3-12 months).
Lender Differences
Not all lenders handle judgments and liens the same way. Some are more flexible than others. Work with a lender who has experience with your specific type of judgment or lien.
Documentation
Documentation needed: court documents showing the judgment, payment plan agreement (if applicable), proof of payments, satisfaction letter (if paid), and IRS payment plan for tax liens.
Strategies
Strategy: pay off small judgments. Set up payment plans for larger ones. Show consistent on-time payments. Consider waiting if the judgment is close to expiring.