Fannie Mae IRS Installment Agreements in DTI: SEL-2026-05 B3-6-05 Update

The Fannie Mae Selling Guide has been updated (via SEL-2026-05) with significant changes to how IRS installment agreements are treated in debt-to-income (DTI) calculations. Understanding these changes is crucial for mortgage brokers to ensure compliance and avoid potential underwriting issues. This post explores how the updated Selling Guide B3-6-05 section affects the treatment of IRS installment agreements.

How does SEL-2026-05 impact IRS installment agreements in DTI calculations?

The update clarifies that IRS installment agreements must be included in the borrower's recurring monthly debt obligations when calculating the DTI ratio. This change ensures that all debts are accurately reflected in the borrower's financial profile, providing a more comprehensive view of their ability to repay the mortgage.

Previously, there was ambiguity about whether these agreements could be excluded under certain conditions. However, SEL-2026-05 makes it clear that unless specific criteria are met, the monthly payment amount from an IRS installment agreement must be factored into the DTI calculation. This aligns with Fannie Mae's broader goal of promoting responsible lending practices by ensuring that all significant financial obligations are considered.

What documentation is required for IRS installment agreements?

To properly include an IRS installment agreement in the DTI calculation, lenders must obtain specific documentation. According to the Fannie Mae Selling Guide (B2-2-03), the following documents are necessary:

• A copy of the approved IRS installment agreement, detailing the terms of repayment, including the monthly payment amount and total amount due.
• Evidence that the borrower is current on the payments associated with the tax installment plan. Acceptable evidence includes the most recent payment reminder from the IRS, reflecting the last payment amount and date, as well as the next payment amount owed and due date.

If the installment agreement is pending approval, a copy of the application with the terms of repayment must be provided. In both scenarios, if the borrower is not paying off the amount owed in full, the monthly payment amount must be included in the borrower's monthly debt obligations.

Can IRS installment payments ever be excluded from DTI?

Under certain conditions outlined in the Fannie Mae Selling Guide (B3-6-05), IRS installment payments can be excluded from the DTI calculation. This exclusion is possible if the debt meets the terms specified in the "Debts Paid by Others" or "Installment Debt" sections of the guide.

For instance, if another party is making the payments on the borrower's behalf, and the borrower is not legally obligated to repay the debt, the lender may exclude the monthly payment from the borrower's recurring obligations. However, this exclusion does not apply if the other party is an interested party to the transaction, such as the seller or real estate agent.

What are the implications for brokers and lenders?

The inclusion of IRS installment agreements in DTI calculations can impact a borrower's eligibility for a mortgage. Brokers and lenders need to be diligent in verifying and documenting these agreements to ensure accurate DTI calculations. This diligence helps prevent delays in the underwriting process and reduces the risk of loans being conditioned or denied due to incomplete or inaccurate financial profiles.

Additionally, brokers should educate borrowers about the importance of disclosing all financial obligations, including IRS installment agreements, during the mortgage application process. Transparency is key to avoiding surprises that could affect loan approval.

How should brokers adjust their processes?

To adapt to the changes brought by SEL-2026-05, brokers should consider implementing the following practices:

1. Thorough Documentation: Ensure that all necessary documentation for IRS installment agreements is collected early in the application process. This includes obtaining copies of the agreement and evidence of current payments.

2. Regular Training: Stay updated on Fannie Mae guidelines and provide regular training for staff to understand the implications of these changes on DTI calculations.

3. Clear Communication: Communicate clearly with borrowers about the need to disclose all financial obligations, including IRS installment agreements, to avoid potential issues during underwriting.

4. Proactive Monitoring: Develop a system to monitor changes in borrower financial circumstances that could affect DTI calculations, such as new debts or changes in income.

By incorporating these practices, brokers can better manage the impact of IRS installment agreements on DTI calculations and improve the overall efficiency of the mortgage approval process.

For more on agency mortgage guidelines, see the Agency Guidelines hub.

This article is for informational purposes only and is not professional advice. Always verify against current guidelines before making decisions.