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Can I Qualify For FHA Loan With Open Collections And Charge Offs

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Can I Qualify For FHA Loan With Open Collections And Charge Offs

This Article On Can I Qualify For FHA Loan With Open Collections And Charge Offs Was PUBLISHED On July 14th, 2019

Can I Qualify For FHA Loan With Open Collections And Charge Offs

Can I Qualify For FHA Loan With Open Collections And Charge Off Accounts:

After the Great Recession Of 2008, nearly every American’s credit suffered in one way or another.

  • The vast amount of jobs lost during this period, and subsequent to this period, caused many hard working American’s to be unable to meet their monthly obligations
  • Per the FHA Guidelines, open collections with outstanding unpaid balances are permitted during the mortgage process
  • Charge off accounts do not have to be paid to qualify for FHA Loans
  • Medical collections and charge off accounts are disregarded and not considered by underwriters

In this article, we will cover and discuss Can I Qualify For FHA Loan With Open Collections And Charge Offs.

How Does HUD Define Collections

How Does HUD Define Collections

Can I Qualify For FHA Loan With Open Collections?

  • HUD Says YES
  • The United States Department of Housing and Urban Development, also known as HUD, is the parent of the Federal Housing Administration or FHA
  • FHA is not a mortgage lender nor does it endorse, originate, process, underwrite fund, or service FHA Loans
  • FHA is a government entity under HUD whose primary and main function is to insure FHA Loans that are originated, processed, underwritten, and serviced by mortgage companies
  • Lenders that originate and fund FHA Loans needs to be HUD approved
  • Lenders need to follow all aspects of HUD mortgage lending guidelines in order for FHA to insure the FHA Loans that they originate and fund in the event the borrowers’ default

How does HUD define collections? Simply put, it is an obligation that the buyer had that required submission to a collection agency. Many lenders have lender overlays that disallow open collections, even medical, charge off accounts, and require payment in full prior to closing. Lender overlays are additional guidelines on top of the minimum HUD Agency Guidelines set by individual lenders.

HUD Guidelines On Collection Accounts

HUD Guidelines On Collection Accounts

Can I Qualify For FHA Loan With Open Collections?

Below are the FHA Guidelines On Collection Accounts relating to open collection accounts with outstanding unpaid balances.
If you pay that debt in full at the time of closing, funds must be sourced.

  •  You may enter into written payment arrangements with the creditors and/or collection agencies
  • The monthly payment amount would be considered as part of calculating your debt to income ratio
  • If you are unable to enter into a payment arrangement, the lender will calculate the monthly payment using 5% of the outstanding balance of each collection account
  • This amount would be considered as part of your debt to income ratio

Payment Agreement On Your Collections When You Have High DTI

Payment Agreement On Your Collections When You Have High DTI

It would typically be in your best interest to enter into those payment arrangements rather than allowing the lender to calculate using the 5%, as you are likely to get a lower payment than the 5% consideration.

  • The lower payment will then also lower your debt to income ratio compared to the lenders’ calculation
  • As you can see, you may still qualify for an FHA loan with open collection accounts
  • THERE ARE OPTIONS!
  • The most important thing is to start your mortgage process with a lender who does not have internal overlays that prohibit these types of accounts

Qualifying For FHA Home Loans With A Direct Lender With No Overlays

Qualifying For FHA Home Loans With A Direct Lender With No Overlays

This article on ” Can I Qualify For FHA Loan With Open Collections ” was written by the team at Gustan Cho Associates at Loan Cabin Inc, a direct lender with no overlays on government and conventional loans. Gustan Cho Associates Mortgage Group specialize in helping borrowers who have had prior credit issues and higher debt to income ratios. To qualify for an FHA Loan, a borrower needs to meet a 580 minimum credit score and will need a 3.5% down payment. Gustan Cho Associates helps countless home buyers who had a rough time qualifying with other lenders due to that lender’s overlays. The Gustan Cho Team represents a national mortgage banking company that has no Lender Overlays. Gustan Cho Associates at Loan Cabin Inc. is a Fannie Mae, Freddie Mac, and Ginnie direct national mortgage lender. We will just go off the automated findings off the Automated Underwriting System. There are no lender overlays on credit scores, collection accounts, charge off accounts, and debt to income ratios at Gustan Cho Associates. If you are seeking to get qualified for a home loan and have had prior credit issues and are having a hard time finding a mortgage lender who can help you, please contact Gustan Cho Associates at 262-716-8151 or text us for faster response. or email us at gcho@loancabin.com.

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