Will Underwriter Approve Mortgage With Judgment And Collections?
Qualifying For Mortgage With Judgment And Collections: Home buyers seeking a home loan with bad credit can qualify for a mortgage with judgment and collections. However, not all mortgage lenders will approve a home buyer for a mortgage with judgement and collections due to their lender overlays. Mortgage lenders with no lender overlays, such as myself, will just go off the minimum federal lending guidelines with regards to judgment and collections. Both HUD, the parent of the Federal Housing Administration, and Fannie Mae and Freddie Mac have their own lending guidelines for mortgage with judgment and collections.
FHA Guidelines For Mortgage With Judgment And Collections
FHA guidelines for mortgage with judgment and collections are lenient than conventional loans, VA Loans, USDA Loans, and Jumbo Mortgages. On this blog, we will be discussing FHA Guidelines for mortgage with judgment and collections and how a home buyer with a judgment and unpaid collection accounts can qualify for a FHA Loan .
FHA Guidelines On Collection Accounts
FHA categorizes collection accounts into two separate categories. Non-medical collection accounts and medical collection accounts. FHA does not require that unpaid collection accounts to be paid in order to get a FHA loan approval. With non-medical collections greater than $1,000 ( total of all unpaid collection accounts ), then 5% of the unpaid balance of the collection account will be calculated in debt to income . For example, if a mortgage loan borrower has unpaid collection accounts totaling $5,000, then 5% of the $5,000 or $250 will be used as a monthly occurring debt and will be used by the mortgage underwriter to calculate the borrower’s debt to income ratio even though the borrower is not obligated to pay anything. Any unpaid collection accounts under $1,000 are exempt and are not counted towards the debt to income ratio calculations.
FHA Loans And Medical Collections
FHA treats medical collection accounts differently than non-medical collection accounts. Unpaid medical collection accounts are exempt from the debt to income ratio calculations on unpaid collection account balances no matter how much the outstanding unpaid collection balance is. There is no 5% deduction from the unpaid outstanding medical collection account balance.
FHA Guidelines On Judgments
Judgments are probably the worst derogatory item you can have on your credit report. Judgments are collection accounts that the court has ordered in favor of the judgment creditor and gives the judgment creditor the power to pursue collection actions such as wage garnishments, levy of assets from bank accounts and investment accounts. The good news is that you can qualify for a FHA loan with judgments as long as you have a written payment agreement with the judgment creditor and you have made at least three payments. Three months of canceled checks will be required.
What Happens If I Default On My Payment Agreement With The Judgment Creditor After I Close On My Home Loan?
Whatever happens after closing does not matter and the mortgage lender will not enforce it. If you were to enter into a written payment agreement with a judgment creditor and after you close on your home loan, you default on the written payment agreement with the judgment creditor, that is between you and the judgment creditor. Bottom line is if you enter into a written payment agreement with a judgment creditor and keep that payment current until you close on your mortgage loan and do not make any more payments after you close, that is perfectly fine. You will not be in default of the terms of your mortgage note.
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