Can You Get a Mortgage With Charge-Off Accounts With Balances?
If you’re trying to buy a home but your credit report shows charge-off accounts with balances, you might be worried. Many borrowers ask us: “Do I have to pay off these accounts before I can get approved for a mortgage?”
The good news? At Gustan Cho Associates, we specialize in helping people qualify for FHA, VA, USDA, and Conventional loans even if they have charge-offs, collections, or other past credit issues.
In this guide, you’ll learn everything you need about charge-off accounts with balances—what they are, how they affect your credit, what underwriters look for, and the mortgage options available in 2025.
What Are Charge-Off Accounts With Balances?
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A charge-off account happens when a creditor writes off your unpaid debt as a loss. But here’s the key:
- The creditor may stop trying to collect directly.
- The account is reported to the credit agencies as a charge-off.
- The balance usually still shows on your credit report.
- That balance can be sold to a collection agency that may try to collect.
This confuses many borrowers. They think a charge-off is gone, but the balance often remains on the report. That’s why you’ll see the term “charge-off accounts with balances.”
Worried About Charge-Off Accounts?
Learn how mortgage underwriters view charge-offs with balances and what it means for your approval.
Do Charge-Off Accounts With Balances Hurt Your Credit?
Charge-offs significantly affect your credit score and influence how lenders view you. They are considered one of the most detrimental items on a credit report, and the impact on your score increases with the account balance; a higher balance leads to a more substantial negative effect.
Additionally, while older charge-offs remain visible to underwriters, their age plays a role in their impact. Generally, older charge-offs have less of an effect compared to newer ones.
While charge-offs lower your score, they do not automatically disqualify you from getting a mortgage, especially if you work with a lender that follows FHA’s lenient guidelines.
FHA Guidelines on Charge-Off Accounts With Balances
FHA loans are pretty lenient about charge-off accounts that still have balances. Just take a look at HUD’s 4000.1 Handbook for more info.
- Charge-off accounts are excluded from debt-to-income (DTI) calculations.
- Medical collections are also excluded.
- You do not have to pay off charge-off accounts with balances to qualify for FHA.
This means you can proceed with an FHA mortgage approval even if your credit report still lists unpaid charge-offs.
At Gustan Cho Associates, we’ve helped thousands of homebuyers get approved for FHA loans without settling or paying off these balances first.
Fannie Mae and Freddie Mac Guidelines in 2025
Conventional loans, especially those looked at through Fannie Mae and Freddie Mac’s automated underwriting systems (DU and LP), come with some flexibility that many loan officers might overlook. One cool thing is how charge-off accounts are handled; if you’re buying a home to live in, you don’t have to pay off any charge-off accounts that still have balances. This can be a big help for folks with past financial hiccups.
The automated underwriting process can give you the green light even if you have unpaid charge-offs.
If you want to improve your chances for approval, showing that you have solid reserves or other positive factors—like a good income or some savings—can make a big difference. These issues can sway the overall assessment and help you get a thumbs up, even if your finances aren’t perfect.
Remember that many banks tend to add their own rules on top of what Fannie or Freddie says—these are called overlays. So, even when the guidelines don’t ask for it, borrowers often hear they need to pay off charge-offs. At Gustan Cho Associates, we stick to the agency rules and don’t have those extra overlays.
VA and USDA Loan Rules for Charge-Off Accounts
For VA and USDA loans, the rules are slightly stricter than those for FHA or Conventional:
- VA lenders may require more explanation for recent charge-offs.
- USDA loans typically expect cleaner credit, but older charge-offs may still pass through underwriting.
- Each lender may apply their own additional requirements.
Don’t give up if you’ve been denied by a bank because of charge-off accounts with balances. We often get borrowers approved for VA and USDA loans when other lenders couldn’t.
Why Loan Officers Get Charge-Off Guidelines Wrong
One of the most significant problems in the industry is misinformation. Many loan officers tell borrowers:
- “You can’t qualify with a charge-off balance showing.”
- “You must pay off or settle before applying.”
Here’s the truth: all charge-off accounts will show balances on credit reports. That balance represents the amount the creditor wrote off—it does not mean you must pay it to qualify.
This misunderstanding causes thousands of unnecessary denials each year. At Gustan Cho Associates, we review every borrower’s file carefully and strictly follow FHA, VA, USDA, and Conventional guidelines—not overlays.
Charge-Offs Don’t Always Mean Denial
Understand the rules lenders follow when reviewing charge-off accounts.
Should You Pay Off Charge-Off Accounts With Balances?
This is one of the most common questions we hear. The answer depends:
- For FHA loans: Not required. Paying may not help your approval.
- For Conventional loans: Not required in most cases. But paying old charge-offs can sometimes hurt your credit score temporarily because it updates the “date of last activity.”
- For VA and USDA loans: May be requested by an underwriter depending on circumstances.
Our advice: Talk to a mortgage expert before paying off a charge-off. At Gustan Cho Associates, we’ll review your full credit and income picture to see if paying it helps—or hurts—your approval chances.
Real-Life Example: Getting Approved With Charge-Off Accounts
We recently helped a borrower with:
- 3 credit card charge-offs totaling over $15,000.
- A 590 credit score.
- Steady W-2 income.
Another lender denied them, saying the charge-offs had to be paid first. At Gustan Cho Associates, we ran the file through the FHA’s automated underwriting system. It was approved immediately—without paying a single charge-off. That borrower closed on their new home in 30 days.
Working with a lender who understands charge-off accounts with balances is essential.
How to Improve Your Chances of Approval With Charge-Offs
Even if you have charge-off accounts with balances, here are steps you can take to strengthen your file:
- Keep all current accounts paid on time. New late payments are worse than old charge-offs.
- Reduce credit card balances. Lowering utilization can boost scores fast.
- Show stable income. Underwriters care more about the ability to repay than old charge-offs.
- Avoid disputing charge-offs before applying. Disputes can delay or suspend approval.
- Work with a no-overlay lender like Gustan Cho Associates.
Charge-Off Accounts With Balances and Debt-to-Income Ratios
Many borrowers worry that charge-off balances will inflate their DTI ratio. FHA specifically excludes charge-offs from DTI calculations. That means underwriters will not count them against your debt load.
This is a huge advantage, especially for borrowers with multiple old charge-offs. You can still qualify even if your credit report shows high balance
Final Thoughts: Can You Buy a Home Even if You Have Charge-Off Accounts with Unpaid Balances?
Having charge-off accounts with balances on your credit report doesn’t mean you can’t get a mortgage. FHA, VA, USDA, and Conventional guidelines in 2025 allow for approvals even with unpaid charge-offs.
The real challenge is finding a lender who understands the rules. At Gustan Cho Associates, we specialize in helping borrowers who have been turned down elsewhere. With no lender overlays, we approve mortgages every day for people with charge-offs, collections, or low credit scores.
Borrowers who need a five-star national mortgage company licensed in 50 states with no overlays and who are experts on charge-off accounts with balances, please contact us at 800-900-8569, text us for a faster response, or email us at gcho@gustancho.com. Let us help you become a homeowner—even if you have charge-off accounts with balances.
Frequently Asked Questions About Charge-Off Accounts with Balances:
Q: What Does it Mean to Have Charge-Off Accounts with Balances?
A: It means the lender wrote off your debt as a loss, but the balance still shows on your credit report.
Q: Do I Need to Pay Off Charge-Off Accounts with Balances to Get an FHA Loan?
A: No, FHA does not require you to pay charge-off accounts with balances before qualifying.
Q: Can I Buy a House if I have Charge-Off Accounts with Balances?
A: Yes, many borrowers still qualify for a mortgage even if they have charge-off accounts with balances.
Q: Do Charge-Off Accounts with Balances Hurt My Credit Score?
A: Yes, they lower your credit score, but you can still qualify for FHA and even some Conventional loans.
Q: How Long Will Charge-Off Accounts with Balances Stay on My Credit Report?
A: They usually stay for seven years from the first missed payment date.
Q: Should I Pay Off Charge-Off Accounts with Balances Before Applying for a Loan?
A: Not always. Paying them may not help and can sometimes lower your score. Talk to your lender first.
Q: Can I Qualify for a Conventional Loan with Charge-Off Accounts with Balances?
A: Yes, Fannie Mae and Freddie Mac allow approvals even with unpaid charge-off accounts with balances.
Q: Do Charge-Off Accounts with Balances Affect My Debt-to-Income Ratio?
A: No, FHA rules say charge-off accounts with balances do not count toward your debt-to-income ratio.
Q: What’s the Difference Between Collections and Charge-Off Accounts with Balances?
A: Collections are accounts being actively collected. Charge-off accounts with balances are debts the lender wrote off, but still show on your credit report.
Q: Who Can Help Me Get Approved for Charge-Off Accounts with Balances?
A: Gustan Cho Associates can. We specialize in helping borrowers get approved for mortgages even with charge-off accounts with balances.
This article about “How Do Underwriters View Charge-Off Accounts With Balances” was updated on August 18th, 2025.
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