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Mortgage approval frustration

I have had a rough financial past from 2003 thru 2006 and had bad credit (around 525 score) but I have now increased my credit score to between 680 and 700 depending on the credit agency.  I also have Federal tax liens (filed in 2008) on my credit report for the tax years 2003 thru 2005.  In 2009 I entered into a payment plan with the IRS.  I have made all payments due and, for the most part,  have been on time with payments but twice in the last 16 months I have been late on my payment.  I applied for a mortgage in April (my credit score at the time was about 650) and was told I needed to go the FHA route due to score and minimal down payment.  I have good income and was preapproved for a mortgage in April.  Since signing the contract on the home purchase and putting down earnest money, the mortgage company has said that since I have had late payments to the IRS on the payment plan, I am ineligible for an FHA loan. What are my options?  Are there any other alternatives I have, short of paying off the IRS and getting the release on the liens?  I have worked hard to increase my credit score to be able to purchase a home again.  I thought I was good to go since I had a preapproval, but I guess that really doesn't mean much.  Any advice would be appreciated.
Thanks
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July 28 2013 - Omaha
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Answers (2)

You may be in the scenario where you will need 12 months of no lates. By late I mean a 30 day or more late on any owed debt. Once you clear that hurdly , there are lots of loan prospects, regardless of the IRS debt.
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July 28 2013
Late payments on the payment plan will kill the deal.  Only alternative at this point is to payoff the lien(s).
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July 28 2013
 
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