FHA Guidelines On Medical Collections
Updated FHA Guidelines On Medical Collections:
FHA categorizes collection accounts into two categories: Medical collection accounts and non-medical collection accounts . Medical collection accounts are treated totally differently than non-medical collection accounts. FHA understands that home loan applicants with medical collection accounts do not have the medical collection accounts due to disregard for credit. FHA understands that people who have medical collection accounts that are not paid could have a discrepancy with their medical insurance provider where the medical insurance provider has not fully paid the medical bills.
How Outstanding Non-Medical Collections Differ From Medical Collection Accounts?
Under 2015 FHA mortgage lending guidelines, you do not have to pay unpaid collection accounts, whether it is a medical collection account or non-medical collection accounts. However, with non-medical collection accounts, the unpaid collection account balance is taken into consideration. If your unpaid non-medical collection accounts total more than $1,000 dollar, then FHA requires that 5% of the unpaid outstanding collection account balance be taken into consideration when the underwriter is calculating the mortgage loan applicant’s debt to income ratios . This can create a problem if the mortgage loan applicant has a large unpaid collection account balance. For example, if the total unpaid collection balance is $10,000, then 5% of the unpaid $10,000 collection account balance, or $500 per month will be taken into consideration and counted as a monthly debt obligation by the mortgage loan underwriter in calculating the borrower’s debt to income ratios even though the mortgage loan borrower does not need to actually pay for it. The good news is if the mortgage loan applicant has a substantially high unpaid collection balance, FHA will allow the mortgage loan borrower to set up a written payment agreement with the collection account agency and that monthly payment agreement will be the amount that will be used as the monthly debt obligation. So on the case where the mortgage loan applicant owes the collection agency $10,000, instead of counting the $500 as the monthly debt obligation, if the mortgage loan borrower has a written payment agreement for $100, then the $100 will be used as the monthly debt in calculating the debt to income ratios.
FHA Guidelines On Medical Collections
With FHA Guidelines On medical collections with an unpaid balance, the rules are totally different. FHA Guidelines On Medical Collections are exempt from the above rules and regulations. No matter what the unpaid collection balance is on medical collections, it is not used to calculate debt to income ratios when it comes to income calculations. Unpaid medical collections can be ignored with FHA lenders unless the FHA mortgage lender has their own lender overlays where they override the minimum FHA lending guidelines.
FHA Guidelines On Charge Offs
FHA ignores charge off collection accounts and consider it as zero balance. However, you cannot have any credit disputes when it comes to charge off accounts. All credit disputes on non-medical collection accounts that are charge offs needs to be retracted for the mortgage approval process to continue. If you are in the mortgage loan application and mortgage approval process and there are credit disputes on charge off accounts on non-medical collection accounts, the mortgage process will come to an immediate halt until the credit disputes are removed. Non-medical charge off accounts are exempt from this rule. FHA Guidelines on medical collections are exempt all the way around.
FHA Guidelines On Credit Disputes
There are strict FHA guidelines on credit disputes . If a mortgage loan borrower has credit disputes on unpaid collection accounts that the sum of the unpaid balances total $1,000 or greater on non-medical collection accounts, all credit disputes must be retracted in order for the mortgage application and mortgage approval process to go forward. For unpaid medical collection accounts, the FHA guidelines on credit disputes are exempt and you can have medical collection accounts credit balances no matter how much the unpaid medical collection balance is. Again, FHA Guidelines on medical collections are exempt.