This ARTICLE On Fannie Mae Collection Accounts Guidelines Versus FHA Was PUBLISHED On April 27th, 2020

Fannie Mae Collection Accounts Guidelines For Conventional Loans Versus FHA

Fannie Mae and Freddie Mac is in charge of setting up mortgage rules and guidelines for Conventional Loans. Conventional Loans are called Conforming Loans. This is because they need to conform to Fannie Mae and/or Freddie Mac Mortgage Guidelines.

• HUD, the United States Department of Housing and Urban Development which is the parent of the Federal Housing Administration or FHA,
• FHA is in charge of setting up the mortgage requirements and guidelines for FHA Loans
• Every mortgage program has lending guidelines on collection accounts and how a borrower will qualify for a home loan with outstanding collection accounts, past due credit accounts, and charge off accounts
• Fannie Mae Collection Accounts Guidelines differs than those of FHA Guidelines On Collection Accounts
• Fannie Mae Collection Accounts Guidelines are more strict on the qualification requirements for Conventional Loans Versus FHA Loans

In this article, we will discuss and cover Fannie Mae Collection Accounts Guidelines Versus FHA.

Fannie Mae Collection Accounts Guidelines And Conventional Loan Requirements

To qualify for Conventional Loans, borrowers need to follow the standards and lending guidelines set by the two mortgage giants, Fannie Mae, and Freddie Mac.

• Conventional Loans are called Conforming Loans because they need to conform to lending standards of Fannie Mae and/or Freddie Mac
• Minimum credit scores required to qualify for Conventional Loans are 620 credit scores
• There is a four-year mandatory waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date
• There is a two year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date
• There is a four-year waiting period to qualify for a Conventional Loan after a deed in lieu of foreclosure and/or short sale
• There is a seven-year mandatory waiting period to qualify for a Conventional Loan after a foreclosure
• For deeds in lieu of foreclosure and foreclosure, the waiting period time clock starts from the recorded date of the deed in lieu and/or foreclosure
• Not the date when the keys were turned in to the bank or mortgage lender

Fannie Mae Collection Accounts Guidelines ON Credit Payment History On Credit Report

Just because borrowers have a minimum credit score of 620 does not mean that the borrower will qualify for a Conventional Loan.

• Conventional lenders will also look at the borrower’s credit report and look for timely payment history, especially for the past 12 months
• Most lenders will not approve borrowers who had any late payment history after a bankruptcy or foreclosure
• Those who have late payments that are not in collections, all of the late payments need to be current in order for them to qualify for a Conventional Loan

For example, if the borrower has a creditor who he or she has not paid for the past six months and that account is not in collections, the borrower needs to get all of the past due payments current in order to qualify for Conventional Loans.

Fannie Mae Collection Accounts Guidelines On Outstanding Collection Accounts 

Borrowers do not have to pay off any outstanding collection accounts and/or charge off accounts if they are purchasing a one-unit primary owner occupant home. This holds true regardless of the outstanding collection account balance and/or charge off account balance.

• Borrowers who are purchasing two to four-unit owner-occupied primary residential properties and/or second home properties must pay off any outstanding collection accounts and/or charge off accounts if the outstanding balance is $5,000 or greater at or prior to closing of their home
• This guideline does not apply on FHA Loans
• Borrowers who are purchasing investment properties must pay off individual collection accounts and/or charge off accounts that is equal or greater than $250
• Collection accounts that total more than $1,000 need to be paid in full on conventional investment property loans

This needs to be paid off at or prior to closing of their home loan.

Bad Credit Conventional Loans

Conventional Loans have higher credit and lending standards than FHA Loans.

• The maximum debt to income ratio requirements on Conventional Loans is capped at 45% DTI
• Whereas with FHA Loans, the debt to income ratios can go up as high as 56.9% DTI
• Borrowers with 20% down payment and/or 700 credit scores can qualify for Conventional Loans with up to 50%
• Minimum credit scores to qualify for FHA Loans is 580 credit scores for a 3.5% down payment home purchase home loan
• However, need a minimum credit score of 620 credit scores to qualify for Conventional Loans
• The waiting period to qualify for FHA Loans after Chapter 7 Bankruptcy is a 2-year waiting period after the Chapter 7 Bankruptcy discharged date
• There is a four-year mandatory waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date

There is no mandatory waiting period to qualify for an FHA Loan after a Chapter 13 Bankruptcy discharged date.

Conventional Loan After Bankruptcy Guidelines

There is a two year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date:

• There is a three-year waiting period to qualify for an FHA Loan after a foreclosure, deed in lieu of foreclosure and short sale
• With Conventional Loans, there is a four-year mandatory waiting period to qualify for a Conventional Loan after a deed in lieu of foreclosure or short sale
• 7 year mandatory waiting period to qualify for a Conventional Loan after the recorded date or sheriff’s sale date of a foreclosure
• Most Lenders do not want to see any late payments or derogatory credit after a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
• They want to see re-established credit and no late payments

However, there are extenuating circumstances and late payments and derogatory credit can happen so this will not be a deal-killer but a good letter of explanation will be required.

Fannie Mae Collection Accounts Guidelines On Mortgage Part Of Bankruptcy

Borrowers with a prior mortgage part of your Chapter 7 Bankruptcy there is a four year waiting period from the discharged date of Chapter 7 Bankruptcy. The recorded date of the final sheriff’s sale or foreclosure does not matter.

• However, the foreclosure needs to have been finalized
• The waiting period will be four years from the Chapter 7 Bankruptcy discharged date, although the final foreclosure date can be at a later date
• Borrowers cannot have re-affirmed the mortgage

Home Buyers or homeowners who looking for a Conventional Mortgage Lender who has no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates Mortgage Group has zero lender overlays on government and conventional loans. We are available 7 days a week, evenings, weekends, and holidays.