How Can I Qualify For FHA Loan With Unpaid Charge Offs Accounts

Qualify For FHA Loan With Unpaid Charge Offs With Lender

Charge Off Accounts are negative credit items where a consumer has not paid their debt payments to the creditor and the creditor has charged it off on their books. Charge Off Accounts do not relieve the consumer of their debt obligations to the creditor. Charge off accounts means that the creditor has deemed the debt uncollectible and has written the debt off. Creditors can sell charge off accounts to credit collection companies and the credit collection agencies can try to go after the consumer and try to collect on the charge off collection accounts. A home buyer can qualify for FHA Loan With Unpaid Charge Offs without having to satisfy the charge off accounts. Most charge off accounts show a balance on the consumer’s credit report and that is normally how it is reported.  FHA mortgage lenders do not need to take a percentage of a charge off account and use it for debt to income ratio calculations like they need to do with non-medical collection accounts with outstanding unpaid collection balances.

Qualify For FHA Loan With Unpaid Charge Offs: Collection Accounts Versus Charge Offs

FHA does not require FHA mortgage loan borrowers to have to pay off collection accounts with outstanding balances as well as unpaid charge off accounts. However, FHA does classifies collection accounts into two different categories: Medical Collections and Non-Medical Collections. Medical Collection Accounts are exempt and a percentage of the outstanding unpaid balance is not used to calculate the borrower’s debt to income ratios. However, with non-medical collections with outstanding unpaid credit balances, 5% of the unpaid outstanding collection account balance will be used as a monthly debt expense, even though the borrower does not have to pay, and used in the calculation of the borrower’s debt to income ratios. Those mortgage loan borrowers who have large outstanding collection account balances and the 5% of the outstanding unpaid collection account balance will disqualify them due to exceeding the maximum debt to income ratios required by the FHA approved mortgage lender, the borrower can enter into a written payment agreement with the creditor and/or collection agency and the amount agreed in the written payment agreement will be used in lieu of the 5% of the outstanding unpaid collection account balance. There are no mandatory seasoning payment requirements with non-payment collection accounts and its written payment agreement and once the written payment agreement with the creditor and/or collection agency is executed, then that date will be the effective date.

With medical collections, outstanding unpaid balances on medical collection accounts are exempt and a percentage of the outstanding unpaid collection balance is not taken into consideration as a monthly debt and can be ignored.

Same principal with charge off accounts. All non-medical charge off accounts will not count in calculations of debt to income calculations.

However, credit disputes are not allowed on charge off accounts and non-medical collection accounts with a total outstanding and unpaid balance of $1,000 and those credit disputes needs to be retracted in order for the mortgage approval process to continue. One of the main issues that come into play with retracting credit disputes is that once a consumer retracts an active credit dispute, their credit scores will drop.

Qualify For FHA Loan With Unpaid Charge Offs: Mortgage Charge Offs Versus Non-Mortgage Charge Offs

FHA classifies charge offs into two different categories: Mortgage Charge Offs and Non-Mortgage Charge Offs and both of these two types of charge off accounts are treated differently.

You can qualify for a FHA Loan with unpaid charge offs that is mortgage related and where the credit report shows an outstanding unpaid balance on the consumer credit report as a mortgage charge off. However, there is a three year waiting period from the mortgage charge off date in order for them to qualify for a FHA insured mortgage loan. The mortgage charge offs can be the first mortgage and/or second mortgage with an outstanding unpaid collection balance reporting and the mortgage loan borrower will still qualify for a FHA Loan as long as three years has passed since the reported date of the mortgage charge off account.

With non-mortgage charge offs, there is no mandatory waiting period after the reported date of the non-mortgage charge offs to qualify for a FHA Loan. Medical collection accounts and/or medical charge offs are exempt altogether.

If you are told that you do not qualify for a FHA Loan unless you pay off your outstanding collection account balances, look no further and contact me at 262-716-8151 or email me at gcho@gustancho.com. We have no FHA lender overlays and FHA mortgage borrowers are not required to pay off outstanding unpaid collection accounts or charge off accounts.

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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