A tax lien gives the IRS or state government a claim against your property — which takes priority over a new mortgage lender. This makes refinancing difficult but NOT impossible.
The IRS can agree to let the new mortgage take first priority — a "subordination of lien." This requires filing IRS Form 14134. The IRS will consider: your payment history, whether the lien has been filed, and whether the refinance improves your ability to pay.
The cleanest approach — use cash-out refinance proceeds or other funds to fully satisfy the tax debt at closing. The lien is released and the new mortgage has clear priority. This is the path most lenders prefer.
If you have an IRS installment agreement, some lenders may accept it if: 3+ on-time payments made, agreement is documented, and the payments fit within your DTI. The lien may still need to be subordinate.
FHA: tax liens must be paid or have a repayment plan with 3+ months of on-time payments. VA: may allow with established repayment plan. Conventional: typically requires lien resolution before closing.