How Do Mortgage Lenders View Charge-Offs

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In this article, we will cover how do mortgage lenders view charge-offs. One of the frequently asked questions at Gustan Cho Associates is can I qualify for a home loan and how do mortgage lenders view charge-offs?  We will not tell you what you want to hear but rather the FACTS. The simple blunt correct answer on how do mortgage lenders view charge-offs depend on the mortgage lender.

Not all mortgage companies have the same lending requirements on the same mortgage program. Borrowers can have charge-off accounts and qualify for a mortgage with a lender with no overlays. For example, HUD, the parent of FHA, does not require borrowers to pay charge-off accounts to qualify for FHA loans.

Many banks and mortgage lenders require that charge-off accounts be paid off in order to qualify. This is not HUD guidelines but rather a lender overlay. Gustan Cho Associates does not have any overlays on government and/or conventional loans. In this article, we will cover and discuss how do mortgage lenders view charge offs.

How Do Mortgage Lenders View Charge-Offs Depend on The Particular Lender

For consumers who have credit card accounts that are currently open, the three credit reporting agencies will post the  date of last payment. All credit reporting history for the past seven years will be reported on the three credit bureaus. Whether you are paying the credit card payments or not, the credit payment history gets reported. The most recent credit card payment history. is reported on all your monthly debt payments. 

It does not matter whether credit card payments are being paid on time or are behind on payments, the payment history gets reported by your creditors. For credit card accounts that are closed, the date of last activity gets reported. If the credit card was voluntarily closed, the verbiage that was closed by consumer gets noted on the credit bureaus.

Whether credit card payment histories have been on time or have been a late payer on them, the payment history of the credit card will be on your credit report for seven years. On credit card accounts that have closed, the creditor will post the final closed status of the credit card account to the three credit reporting agencies. After seven years from the date of last activity, derogatory credit tradelines gets deleted off your credit report. Chapter 7 Bankruptcies remain on your credit report for ten years.

Can I Get Approved For Mortgage With Charge-Off Accounts?

Charge-offs are credit accounts where a creditor writes off the debt consumers owe them. After they try to collect on them and deems it as an uncollectible debt (normally 4 months), the debt is normally charged off. The creditor can possibly sell charge-offs to collection agencies or can pursue in getting a judgment issued.

A mortgage loan borrower can still qualify for FHA loans with charge-offs accounts. Borrowers with charged-off accounts in the past and is still on credit report do not have to pay outstanding balance off to qualify for government and conventional loans. 

The team at Gustan Cho Associates are experts in helping borrowers with prior charge-off accounts qualify and get approved for mortgage loans with bad credit all of the time. We have no problem in closing on the mortgage loan without having to have them paid off as per HUD mortgage guidelines. Get approved for mortgage with charge-off accounts

Can I Get Mortgage Approval With Judgment?

A judgment is probably one of the worst derogatory items you can have on the credit reports if you intend in applying for a residential mortgage loan. The good news is that I can still qualify borrowers and approve for a residential mortgage loan with an outstanding judgment. As long as the borrower has entered into a written payment agreement with the judgment creditor and made three payments. The borrower needs to provide three month’s of canceled checks and/or bank statements showing proof of payment to the judgment creditor.

What Are Judgments?

A judgment is when a creditor takes a consumer to court for not paying the debt and the court issues a judgment. A judgment stays on credit report for a period for seven years. After 7 years, the judgment record needs to fall off the credit report. Even if borrowers were to pay off the judgment, the judgment report will remain on credit report. However, it will state it as SATISFIED JUDGMENT. Again, as with charge offs, a judgment will eventually plummet credit scores. But as time passes, it will have less and less impact on credit scores.

Do I Need To Pay Charge-Off Accounts To Get Mortgage Approval?

I do not want to provoke folks not to pay on their old debt obligations. But I strongly recommend not to pay an old derogatory account. Paying older dormant charged-off accounts will re-activate the date of last activity. It will also reactivate the statute of limitations on debt.

Paying older charge-offs can lower borrowers credit scores. In the event, if mortgage lender with overlays on charge-offs requires borrowers to pay off old charge-off accounts, you can do that at closing. Do not during the mortgage process.

Paying off an old charge-off account will reactivate that credit account as a current account. Your credit score WILL DROP!!!  I have seen so many times where borrowers made this mistake and hurt their chances in getting a mortgage loan approval.

Frequently Asked Questions (FAQs)

1. What is a charge-off?
   A charge-off happens when a creditor deems a debt uncollectible after a certain period of delinquency. While the debt is still owed, the creditor no longer considers it an asset.
2. How do mortgage lenders view charge-offs?
   Mortgage lenders view charge-offs as negative entries on a borrower’s credit report, indicating a history of delinquent payments or default on a debt. Charge-offs can impact a borrower’s creditworthiness and ability to qualify for a mortgage.
3. Do charge-offs affect my ability to qualify for a mortgage?
   Yes, charge-offs can affect your ability to qualify for a mortgage, as they indicate a history of financial difficulty and may raise concerns for lenders about your ability to repay a new loan.
4. Are all charge-offs treated the same by mortgage lenders?
   No, mortgage lenders may consider various factors when evaluating charge-offs, including the amount of the charge-off, the date it occurred, the reason for the charge-off, and the borrower’s overall credit history.
5. Do I need to pay off charge-offs to qualify for a mortgage?
   Settling charge-offs might enhance your credit score and raise the likelihood of securing a mortgage approval. However, paying off old charge-offs may only sometimes be necessary, especially if they are already several years old.
6. How recent do charge-offs need to be to impact my mortgage application?
   Recent charge-offs are more likely to impact your mortgage application significantly than older ones. Lenders may be more concerned about recent financial difficulties than past issues.
7. Can I dispute charge-offs on my credit report when applying for a mortgage?
   Yes, you can dispute inaccurate or outdated information on your credit report, including charge-offs. However, disputing charge-offs may only sometimes result in their removal, especially if they are valid.
8. Are there any exceptions for certain charge-offs when applying for a mortgage?
   Some lenders may be more lenient toward certain types of charge-offs, such as medical debts, than other types of debt, like credit card charge-offs. However, policies vary among lenders.
9. How can I improve my chances of getting approved for a mortgage with charge-offs on my credit report?
   Enhancing your likelihood of mortgage approval involves showcasing responsible financial habits, like ensuring punctual payments on current debts, minimizing your debt-to-income ratio, and accumulating a larger down payment.
10. Where can I get more information about how charge-offs may affect my mortgage application?
    For tailored guidance on how charge-offs might affect your circumstances and strategies to enhance your chances of mortgage approval, consider consulting with a mortgage lender or a credit counselor.

Best Lenders To Get Mortgage Approval With Charge-Offs

Homebuyers and homeowners needing to qualify for a mortgage with a mortgage lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Click here to find a best lender to get a mortgage approval with charge-offs