VA LOans for Home with Unpaid Property Taxes

Buying a home with a VA loan can seem complicated enough--what happens when you find a property that has unpaid taxes or other liens on the home? Does the VA loan process stop right then and there? Are does the VA loan program allow for homes with encumberances to be purchased with a VA insured home loan?

In the real estate business, it’s understood that some property might have issues--unpaid property taxes or assessments. Taxes must be paid, and a special assessment must also be paid where applicable, before the property can be transferred to the new owner. If the seller cannot or will not pay the assessments or taxes that must be satisfied, do VA loan rules permit the VA home loan to cover these costs?

VA Pamphlet 26-7, The VA Lender’s Handbook, has the answers:

“Generally, VA-guaranteed loans must be first liens. Any existing liens on the property must be paid off or subordinated to the VA loan.” That sounds mostly self-explanatory--the amount owned must be paid. What do the VA loan rules say about specific unpaid items?

“A loan to purchase property subject to unpaid delinquent taxes, special assessments, prior mortgage indebtedness, or other obligations secured by effective liens that the veteran agrees to pay or which constitute encumbrances on the property is not eligible for guaranty if the loan amount plus these unpaid obligations exceeds VA’s reasonable value of the property.”

In such cases, the borrower should discuss the unpaid items with the lender and determine whether the property as it is can be eligible for a VA mortgage at all. If it does meet the criteria as specified above and has not been disqualified from a VA loan guaranty, it’s up to the borrower to make the call whether or not the extra expense is worth it. If you can negotiate something with the seller that is an ideal result, but some borrowers may find that’s not always possible. Talk with your lender about the options for such circumstances and be prepared to pay these fees if you really want to purchase a particular home.

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