Last updated: February 4, 2026
Mortgage and underwriting guidelines can change. The examples in this guide are for education and may vary by lender, AUS findings, and loan type. For the most current official rules, see HUD FHA guidance, the VA Lender’s Handbook, and the Fannie Mae/Freddie Mac selling guides.
Yes, You Can Buy a Home With Collections and Bad Credit.
Many hardworking Americans think buying a home is impossible if they have collections or bad credit on their credit report. The truth? You can still get approved for a mortgage—even with late payments, medical collections, or charge-offs.
At Gustan Cho Associates, we specialize in helping borrowers whom other lenders deny. We offer bad credit mortgage loans with collections and no lender overlays. We follow agency guidelines and don’t add extra rules.
This guide breaks down your mortgage options when you have collections or bad credit, what underwriters typically look for, and how collections may be treated by loan type. As of February 4, 2026, the key theme across programs is that collections don’t automatically disqualify you—but your overall file strength (income, DTI, payment history, and AUS findings) matters. Guidelines can change, so we constantly verify the current rule set during pre-approval using the official program guidance.
What Are Bad Credit Mortgage Loans With Collections?
Bad credit mortgage loans with collections are mortgage programs that allow you to qualify even if:
- Your credit score is below 640 or even below 580.
- You have medical or non-medical collections that are still showing.
- You had a bankruptcy, foreclosure, or short sale in the past.
These loans are designed for real people who may have experienced tough times but now have stable incomes and want to buy a home.
Bad Credit Mortgage Loans With Collections—With No Stress
Don’t let old collections or low credit scores stop your dream of homeownership. At Gustan Cho Associates, we approve loans that other lenders can’t. No overlays, no stress—just fast, simple approvals.
Do I Need to Pay Off My Collections to Get Approved?
This is one of the most common questions from borrowers with collections.
- FHA Loans (2026): You usually do not need to pay off medical collections to qualify. For non-medical collections, lenders only count the monthly payment on collections totaling more than $2,000 (calculated at 5% of the balance if no payment plan exists).
- VA Loans: Extremely flexible. VA does not require collections to be paid off as long as the underwriter sees that you have re-established credit.
- Conventional Loans: Fannie Mae and Freddie Mac do not always require payoff of collections, but many lenders add overlays. At Gustan Cho Associates, we follow only agency guidelines.
- Non-QM Loans: Perfect for borrowers with extensive collections or recent credit issues. No waiting periods, higher flexibility, and manual underwriting options.
Bottom line: You can still get a mortgage with collections. The key is choosing the right loan program.
FHA Bad Credit Mortgage Loans With Collections
As of February 4, 2026, FHA guidance generally treats medical collections more leniently than non-medical collections, and collections may or may not impact qualifying depending on the total unpaid balance and whether a payment plan exists. If unpaid non-medical collections exceed certain thresholds, lenders may be required to either document payoff at/ before closing or count a calculated payment in the debt-to-income ratio. We confirm the correct treatment for your scenario during underwriting based on current FHA guidelines.
Tip: Collection rules can differ by scenario (e.g., community property states, disputed accounts, payment plans), so don’t rely on a single “rule of thumb.”
VA Loans With Collections and Bad Credit
The VA program uses a guideline-based approach to credit underwriting. It looks heavily at the full story: recent payment history, stability, and whether the borrower has re-established satisfactory credit. Collections and charge-offs are not automatically disqualifying, but the underwriter must document that the overall credit profile supports repayment. Exact treatment can vary by lender and AUS findings, so we verify the current standard using the VA Lender’s Handbook.
Conventional Loan Options With Collections (Fannie Mae/Freddie Mac guidance can vary by property type)
Conventional rules can differ based on the automated underwriting findings and the property type/occupancy. For example, Fannie Mae’s DU guidance generally excludes medical collections from payoff requirements, and payoff requirements may vary depending on whether it’s a one-unit primary residence vs. a multi-unit/second home scenario. Many consumer denials happen because some lenders add overlays (extra rules) beyond the agency guidelines, so we review your file against the actual AUS findings and the current selling guide rules.
Get Approved Despite Collections
Bad credit or unpaid collections? No problem. We make mortgage approvals simple and stress-free.
Non-QM Bad Credit Mortgage Loans With Collections
For borrowers who don’t fit traditional rules, non-QM loans are the solution.
Examples of Non-QM Programs:
- Bank statement loans: These loans let people qualify based on their bank deposits from the last 12 to 24 months instead of relying on traditional tax returns. This is especially helpful for self-employed folks or anyone with a variable income since it gives a clearer picture of what they’re actually earning.
- DSCR loans: Debt Service Coverage Ratio (DSCR) loans are designed for investment properties. These loans focus on the rental income from the property rather than the borrower’s personal income. This method helps real estate investors get loans by showing the cash flow their properties generate.
- Asset depletion loans: These loans enable borrowers to convert their liquid assets, such as savings or investment accounts, into qualifying income. This is useful for individuals who may not have a regular income stream but possess significant financial resources to support their borrowing capability.
- One day out of bankruptcy or foreclosure loans: This financing offers opportunities for individuals who have recently experienced bankruptcy or foreclosure, allowing them to secure a mortgage just one day after their financial setback. These loans are aimed at helping borrowers quickly rebuild their credit and regain homeownership.
Non-QM bad credit mortgage loans with collections are perfect for self-employed borrowers, real estate investors, or anyone with major credit challenges.
Real-Life Example: Getting Approved With Collections
Meet John, a determined guy trying to buy his first home, but he ran into some serious financial roadblocks. With a credit score of only 560 and $8,000 in unpaid medical bills, he knew it wouldn’t be a walk in the park. After getting rejected by two banks because of his low score and those collections, John felt pretty down.
But then he discovered Gustan Cho Associates, where they see things differently. They get that life can be unpredictable and sometimes your credit takes a dive. Following the right guidelines, they approved John for an FHA loan with just 10% down. This was a game-changer for him—he could finally buy his first home!
Fast forward two years, and John worked hard to turn his finances around. He refinanced his FHA loan into a Conventional loan, which meant he didn’t have to pay Private Mortgage Insurance (PMI). This switch lowered his monthly payments and showed how much his credit had improved.
John’s story is an excellent reminder that there are paths to homeownership, even when things seem tough financially. At Gustan Cho Associates, they’re all about helping folks tackle their unique situations and make their dream of owning a home a reality.
How to Improve Your Chances of Approval
Even if you have bad credit and collections, here are ways to boost your odds:
- Build a few positive tradelines (secured credit card, small installment loan). Establishing a positive credit history is crucial, especially if you have bad credit. Consider securing a credit card or taking out a small installment loan to create a track record of on-time payments, which can enhance your creditworthiness and demonstrate financial responsibility.
- Keep debt-to-income (DTI) ratios low if possible. Lenders look at your DTI ratio to see how well you can handle your debt. Keeping this ratio low can boost your chances of getting approved since it shows you’ve got a good balance between your debt and income, making you a safer bet for them.
- Write a letter of explanation for your collections. Underwriters want to see the reason: If you have collections on your credit report, providing a transparent and honest letter of explanation can help underwriters understand the circumstances that led to them. This personal touch allows you to address potential concerns directly. It can have a positive impact on their decision-making process.
- Work with a lender with no overlays, like Gustan Cho Associates. Picking a lender like Gustan Cho Associates can be smart if your credit isn’t in the best shape. They don’t pile on extra rules, so you might find it easier to get a loan even if you’ve had some credit issues.
Why Work With Gustan Cho Associates?
Most lenders add overlays, which are stricter rules than those required by FHA, VA, or Fannie Mae. That’s why you may get denied at one bank but approved with us.
- Licensed in 50 states.
- No lender overlays.
- 210+ wholesale lending partners.
- Approvals for FHA, VA, USDA, Conventional, Jumbo, and Non-QM loans.
- Fast closings, even for complex cases.
Borrowers who need a five-star national mortgage company licensed in 48 states with no overlays and who are experts on bad credit mortgage loans with collections, please contact us at 800-900-8569, text us for a faster response, or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.
Frequently Asked Questions About Bad Credit Mortgage Loans with Collections:
Can I Buy a House with Collections on My Credit Report?
Yes—collections don’t automatically block a mortgage. Approval usually depends on the type of collection (medical vs. non-medical), total balances, recent payment history, and your debt-to-income ratio (DTI). FHA guidance, for example, often focuses on how larger non-medical collection balances are handled in underwriting.
Do I have to Pay Off Collections Before Getting Approved?
Not always. Some programs may allow open collections, while others may require payoff or a calculated monthly payment to be counted toward DTI—especially when non-medical collection balances are high, and there’s no documented payment plan.
How do FHA Loans Treat Non-Medical Collections?
FHA guidance may require lenders to document payoff or count a monthly payment for certain unpaid non-medical collections (often calculated as a percentage of the outstanding balance when no payment plan exists). This affects your DTI and can change what you qualify for.
Do Medical Collections Count Against Me When Applying for a Mortgage?
Many mortgage guidelines treat medical collections more leniently than non-medical collections. However, your lender still reviews your overall credit profile and recent payment history. When in doubt, underwriters verify treatment using the applicable program guidance.
What Credit Score do I Need if I’m Applying with Collections?
It depends on the loan type and lender. Many lenders look for a credit score of around 620 for conventional financing. At the same time, other programs may allow lower scores depending on down payment, AUS findings, and the full file.
Can I Get a VA Loan with Collections and Bad Credit?
Often, yes. VA underwriting is typically more flexible and looks at the overall story (stability, recent payment behavior, and the likelihood of repayment), not just the presence of collections. Exact lender requirements can vary, so the VA Lender’s Handbook is the baseline reference.
Do Charge-Offs have to be Paid Off to Qualify for a Mortgage?
Not always. Some programs may not require payoff of charge-offs, but they can still impact approval, pricing, and AUS findings. Underwriters focus heavily on recent payment history and the overall risk profile.
Will Paying Collections Improve My Chances of Approval?
Sometimes. Paying collections can help in certain situations (like meeting lender conditions or improving risk perception), but it can also be case-specific. The bigger “approval levers” are usually re-established on-time payments, stable income, manageable DTI, and clean recent credit behavior.
How Long Do Collections Affect a Mortgage Application?
Collections can influence underwriting as long as they appear on your credit report, but the impact depends on recency, type, and whether there’s a payment plan—plus how the program requires them to be treated in DTI. FHA policy guidance is one of the clearer examples of how collections may be addressed.
1What’s the Best Loan Option if I have Low Scores and Collections?
If you’re comparing options, FHA/VA can be more forgiving than conventional in many cases. At the same time, non-QM may be suitable for borrowers with recent credit events or non-traditional income documentation. The right fit depends on your goals (lowest down payment, easiest approval, or fastest timeline). If you’re specifically searching for bad credit mortgage loans with collections, the best next step is to match the program to your credit profile and income documentation—because bad credit mortgage loans with collections aren’t a single product; they’re a strategy across loan types.
Related> Bad Credit Mortgage Loans: Under 580 Credit Scores
Related> Bad Credit Mortgage Loans
Related> Fannie Mae Selling Guide
Related> Freddie Mac Selling Guide
This article about “Bad Credit Mortgage Loans With Collections With No Stress” was updated on February 4th, 2026.
Bad Credit? Collections? We Say YES.
At Gustan Cho Associates, we close loans banks turn down. No stress, no overlays—just approvals.
