2017 FHA Charge Off Guidelines

This BLOG On 2017 FHA Charge Off Guidelines Was Written By Gustan Cho

2017 FHA Charge Off Guidelines state that a borrower does not need to pay off or settle a charge off account no matter how high the charge off account is for the borrower to qualify for a FHA Loan. The United States Housing and Urban Development, known by most of us as HUD, is the parent of the Federal Housing Administration, known by most as FHA is the government organization that sets the FHA Guidelines. One of HUD’s mission is to promote home ownership in the United States and sets the mortgage lending guidelines for FHA Loans. FHA is not a lender nor does it originate, fund, or service FHA Loans. FHA is a government organization that acts as a mortgage insurer for banks and/or mortgage lenders that originate and fund FHA Loans in the event the FHA Borrower defaults on their FHA Loan and the property goes into foreclosure. Banks and FHA Lenders are able to originate and fund FHA Loans with little down payment and loose credit requirements because FHA promotes it and allows it in order to promote home ownership. FHA realizes that many hard working Americans had at one time or another gone through financial hardship and is very understanding in giving people second chances. The philosophy under FHA’s eyes is that people deserve a second chance to have the opportunity to become home owners after the following:

  • Chapter 7 Bankruptcy : There is a two year waiting period after a Chapter 7 Bankruptcy Discharge Date to qualify for a FHA Loan
  • Chapter 13 Bankruptcy: Borrowers can qualify one year into a Chapter 13 Bankruptcy Repayment Plan as long as they have made 12 timely payments and with the approval with their Chapter 13 Bankruptcy Trustee. There is no waiting period after Chapter 13 Bankruptcy Discharged Date to Qualify For FHA Loan but needs to be a manual underwrite if the Chapter 13 Bankruptcy Discharged Date has not been seasoned for at least 2 years
  • Foreclosure: There is a three waiting period from the recorded date of a foreclosure or the date of the sheriff’s sale to qualify for a FHA Mortgage
  • Deed In Lieu Of Foreclosure: There is a three year waiting period from the recorded date of a deed in lieu of foreclosure to qualify for a FHA Loan
  • Short Sale: There is a three year waiting period from the short sale date of the property which is reflected on closing statement of the short sale to qualify for a FHA Loan
  • Periods Of Bad Credit: FHA understands borrowers having periods of bad credit and/or derogatory credit but FHA wants borrowers to have re-established credit and timely payment history for past 12 months
  • Unpaid Collection Accounts: You do not have to pay off outstanding unpaid collection accounts to qualify for a FHA Loan
  • Charge Off Accounts: 2017 FHA Charge Off Guidelines state that you do not have to pay any outstanding charge off accounts to qualify for a FHA Loan
  • Tax Liens: FHA Allows you to qualify for a FHA Loan without having to pay off your tax liens, however, a written payment agreement is required and three month’s of canceled checks and payments are required. You cannot pre-pay the three months payments upfront once you get a written payment agreement. Three months payments needs to be seasoned for the three months
  • Judgments: FHA allows you to qualify for FHA Loan with outstanding judgment without having it to be paid in full as long as you have a written payment agreement with the judgment creditor and have three months of canceled checks. As with tax liens, you cannot pre-pay the three months payment upfront once you execute a written payment agreement. Three months seasoning is required
  • Other Credit And Financial Issues Due To Extenuating Circumstances: FHA is fairly lenient with regards to qualifying for a FHA Loan and if the borrower cannot get an approve/eligible per Automated Underwriting System, most FHA Lenders can downgrade your FHA Loan Application to a manual underwriting.

FHA does not require borrowers to pay off outstanding collection accounts or charge off accounts to qualify for a 3.5% down payment home purchase home under 2017 FHA Charge Off Guidelines and outstanding Collections Guidelines. FHA Loans are the best loan program for borrowers who have had prior bad credit.

2017 FHA Collection Account Guidelines To Qualify For FHA Loan

Why is it that many borrowers consult with loan officers at various lending institutions and are told that they do not qualify for a FHA Loan because they have outstanding unpaid collection accounts?  Here are some of the answers many borrowers with outstanding collection accounts get when they visit loan officers at banks and mortgage lenders:

  • You cannot qualify for a FHA Loan if you have unpaid collection accounts
  • Come back after you have paid off your collection accounts and it reflects on your credit report
  • You need to have your collection account paid in full and come back to us after it has been seasoned for two years
  • The maximum amount of total collection account balance you can have on your credit report is not to be greater than $5,000

All of the above answers from loan officers at banks and lending institutions are not FHA Guidelines BUT are their own FHA Lender Overlays.

What Are FHA Lender Overlays?

A mortgage lender does not need to approve you for a FHA Loan even though you may meet all FHA Guidelines under HUD 4000.1 FHA Handbook. A lender may set higher lending requirements that is above and beyond of those of FHA Guidelines. These additional mortgage lending requirements that are above and beyond of FHA Mortgage Lending Guidelines are called FHA Lender Overlays . 2017 FHA Charge Off Guidelines state that borrowers do not have to pay off any charged off collection accounts no matter how large the charge off account balance is to qualify for a FHA Loan. However, many mortgage lenders have FHA Lender Overlays on charge off collection accounts where they will require charge off accounts to be paid off in order for the borrower to qualify for a FHA Loan. Other FHA mortgage lenders will have caps on charge off accounts. For example, many banks and smaller sized mortgage bankers will have requirements that borrowers can have charge off collection accounts up to $5,000 maximum to qualify for a FHA Loan. If you are told that you do not qualify for a FHA Loan due to charge off collection accounts, please contact Gustan Cho at 262-716-8151 or email us at gcho@gustancho.com. You do not have to pay off your outstanding charge off collection accounts to qualify for a FHA Loan.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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