Can I Qualify For FHA Loan With Open Collections

This Article On Can I Qualify For FHA Loan With Open Collections Was Written By Gustan Cho

Can I Qualify For FHA Loan With Open Collections?
Written By Gustan Cho NMLS 873293

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. Medical collections and charge off accounts are disregarded and not considered by underwriters.

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 private banks and private mortgage companies. These banks and mortgage companies that originate and fund FHA Loans needs to be HUD approved and follow all aspects of FHA mortgage lending guidelines in order for FHA to insure the FHA Loans that they originate and fund in the event the borrowers default on them.

How does HUD define collections? Simply put, it is an obligation that the buyer had that required submission to a collection agency. Many mortgage lenders have internal lender overlays that disallow open collections, even medical, charge off accounts, and require payment in full prior to closing.

2016 FHA Guidelines On Collection Accounts

Can I Qualify For FHA Loan With Open Collections?

Below are the 2016 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, your lender will calculate a 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

It would typically be in your best interest to enter into those payment arrangements rather than allowing the mortgage 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 a 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.

About The Author: Gustan Cho

Gustan Cho is the Editor In Chief the author of ” Can I Qualify For FHA Loan With Open Collections “.  Gustan Cho is a writer for Gustan Cho Associates and a licensed mortgage loan originator and Area Manager. Gustan Cho and The Gustan Cho Team specialize in helping borrowers who have had prior credit issues and higher debt to income ratios. To qualify for a FHA Loan, a FHA borrower needs to meet a 580 minimum credit score and will need a 3.5% down payment. Gustan Cho and The Gustan Cho Team helps countless of home buyers who had a rough time qualifying with other mortgage lenders due to that lender’s overlays. The Gustan Cho Team  represents a national mortgage banking company that has no FHA Lender Overlays and is  Fannie Mae, Freddie Mac, and Ginnie direct national mortgage lender so 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 with 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 and The Gustan Cho Team at 262-716-8151 or email us at gcho@gustancho.com .

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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