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Can I Qualify For FHA Loan With Tax Lien And Judgments

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Can I Qualify For FHA Loan With Tax Lien And Judgments

This BLOG On Can I Qualify For FHA Loan With Tax Lien And Judgments Was UPDATED On October 22nd, 2018

FHA Loans are government insured mortgage loans:

  • HUD, the parent of FHA, offers very lenient credit and income requirements
  • FHA Home Loans is the most popular mortgage loan program available to home buyers, especially first time home buyers and borrowers with bad credit
  • HUD, the United States Department of Housing and Urban Development, is the parent of the Federal Housing Administration or FHA
  • HUD 4000.1 FHA Handbook is the official handbook that outlines HUD Guidelines
  • Also lists the requirements for borrowers in qualifying for a FHA Loan With Tax Lien and other derogatory collections and credit items

Can I Qualify For FHA Loan With Tax Lien And Role Of FHA

FHA is not a mortgage lender.

  • HUD is a government enterprise whose role and main function is to guarantee FHA Loans that are originated and funded by private banks and lenders
  • Lenders needs to be approved by HUD
  • HUD Approved mortgage lenders need to follow FHA Guidelines in order for Loans that they originate and fund to be insured in the event if borrowers default on their FHA Loans
  • FHA only requires a 3.5% down payment on a home purchase for borrowers who can meet a minimum of a 580 FICO
  • FHA will allow borrowers with credit scores between 500 credit scores and 579 credit scores to qualify for FHA Loans as long as they can put a 10% down payment on their home purchase
  • HUD allows a maximum of 56.9% debt to income ratio for borrowers who have at least a 620 credit score
  • Borrowers under 620 credit scores need to have debt to income ratios that do not exceed 43% DTI

Can I Qualify For FHA Loan With Tax Lien And Chapter 7 Bankruptcy

HUD allows home buyers with a prior Chapter 7 Bankruptcy to qualify for a FHA Loan:

  • This holds true as long as the Chapter 7 Bankruptcy discharged date has been seasoned for at least two years
  • HUD allows borrowers with a prior foreclosure, deed in lieu of foreclosure, and short sale to qualify for a FHA Loan
  • This holds true if the foreclosure, deed in lieu of foreclosure, or short sale has been seasoned for at least three years

FHA Guidelines On Chapter 13 Bankruptcy

FHA Guidelines On FHA Loan After Chapter 13 Bankruptcy Discharge states the following:

  • Borrowers can qualify for FHA Loan during Chapter 13 Bankruptcy Repayment Period
  • They can only qualify if they have been in the Chapter 13 Repayment Plan for at least 12 months
  • Timely payments in all of their Chapter 13 Trustee Payments for past 12 monts
  • Need Trustee Approval
  • Needs to be manually underwriting
  • There is no waiting period to qualify for a FHA Loan after Chapter 13 Bankruptcy discharged date
  • But if the Chapter 13 Bankruptcy discharged date has been seasoned for less than two years, then the file needs to be a manual underwriting
  • All FHA manual underwriting guidelines applies

Qualifying For FHA Loans With Collection Accounts

Under HUD 4000.1 FHA Handbook , FHA does not require borrowers to pay off outstanding collection accounts and charge off accounts. However, outstanding collection accounts with balances do affect the borrower’s debt to income ratios. HUD categorizes collection accounts into three separate distinct categories:

  • Non-Medical Collection Accounts
  • Medical Collection Accounts
  • Charge Off Accounts

On non-medical collection accounts, borrowers are allowed up to a total of $2,000 in outstanding unpaid collection account balance before it affects the debt to income ratios of the borrower.

  • Any outstanding unpaid collection account balance of over $2,000 balance the following applies:
    • 5% of the outstanding unpaid collection account balance will be used as a monthly debt obligation of borrower
    • It will be used in the debt to income calculations of borrower
    • This holds true even though borrower does not have to make any monthly payments

Medical collections and charged off accounts are exempt this 5% rule. Any non-medical collections with zero balance is exempt.

Written Payment Agreements With Creditors To Lower DTI

If the 5% of the outstanding collection account balance is a large monthly figure and will disqualify borrowers from qualifying the following can apply:

  • If the outstanding collections is high and the 5% exceeds the maximum DTI allowed, borrowers can enter into a written payment with the creditors
  • Whatever is agreed upon on the written payment agreement, that figure will be used in lieu of the 5% of the outstanding collection account balance

HUD does exempts medical collection accounts and charge off accounts:

  • Outstanding collection balances and charged offs are exempt from a percentage of the outstanding account balances to be included in the calculations of the borrower’s debt to income ratios
  • This holds true no matter how much the outstanding collection account balances are

Can I Qualify For FHA Loan With Tax Lien With Payment Agreement

Tax Liens and Judgments are the worst thing consumers can have on their credit report:

  • HUD Allows borrowers to qualify for FHA Loan with Tax Lien and Judgments
  • This holds true as long as they have a written payment agreement with the IRS and/or judgment creditor or collection agency
  • Borrowers can qualify for a FHA Loan With Tax Lien and Judgments without having to pay them off in full
  • This holds true as long as consumers has written payment agreement with the Internal Revenue Service and/or Judgment Creditor
  • Needs three consecutive payments to them
  • Borrowers can provide three month’s canceled checks
  • Borrowers cannot pre pay the monthly payments in advance to the IRS or Judgment Creditor in order to qualify
  • Need to make sure that three months seasoning has passed

This BLOG On Can I Qualify For FHA Loan With Tax Lien Was UPDATED On October 22nd, 2018

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