What Are The Requirements In Qualifying For FHA Loan With Unpaid Collection Accounts

Can Home Buyers Qualify For FHA Loan With Unpaid Collection Accounts?

Many FHA mortgage borrowers are confused whether or not they can qualify for a FHA Loan With Unpaid Collection Accounts. Many home buyers go to their local banks, credit unions, and mortgage brokers and are told that they do not qualify for FHA Loan With Unpaid Collection Accounts and when they go on the internet and search the world wide web and research and look into blogs like this, they are told that they can qualify for FHA Loan With Unpaid Collection Accounts without having to pay off the outstanding collection account balance. So who is right and who is wrong?

The reason why so many banks and mortgage lenders tell home buyers that they cannot qualify for a FHA Loan With Unpaid Collection Accounts is due to their own lender overlays . Mortgage lender overlays are mortgage lending requirements that are in addition to the minimum FHA Lending Guidelines that is set by the United States Department of Housing and Urban Development, also known by many as HUD. HUD is the parent of the Federal Housing Administration, or FHA. FHA does not require that FHA borrowers to pay off unpaid outstanding collection accounts in order to qualify for a FHA insured mortgage loan. However, most mortgage lenders, especially banks, will require that outstanding collection accounts be paid off in full in order for borrowers to qualify with their financial institution. This is not necessary if you choose a mortgage lender like myself, who have no mortgage lender overlays on outstanding collection accounts and FHA borrowers will not need to pay off any unpaid outstanding collection accounts in order for them to qualify for a FHA Loan.

Qualifying For FHA Loan With Unpaid Collection Accounts: How Does FHA Categorize Collection Accounts?

FHA divides collection accounts into two categories: Medical Collection Accounts and Non-Medical Collection Accounts. Medical Collection Accounts are treated much more favorably than non-medical collection accounts. With FHA Guidelines, a FHA borrower can have unpaid outstanding medical collection accounts and none of it will be taken into account when calculating the borrower’s debt to income ratios . However, with non-medical collection accounts, the borrower does not have to pay off any outstanding unpaid collection account balance but 5% of the unpaid outstanding collection account balance will be taken into consideration on any collection balance that is greater than $2,000 in debt to income ratio calculations. Even though the borrower does not have to make any payments on any unpaid outstanding collection account balance, 5% of the outstanding collection account will be used and treated like a monthly debt of the borrower. This 5% rule can disqualify many FHA mortgage borrowers if the outstanding unpaid collection account balance is a large amount. For example, if a FHA borrower has a total of $20,000 in unpaid outstanding collection account balances, then 5% of the $20,000 or $1,000 will be treated as a monthly debt even though the borrower does not have to pay that amount. That $1,000 per month is equivalent to a $200,000 mortgage P.I.T.I. and can automatically disqualify any mortgage loan borrower due to exceeding the maximum debt to income ratio caps. However, for those who have a substantial outstanding unpaid collection account balance, FHA will allow the debtor to enter into a written payment agreement with a creditor and whatever the monthly payment agreement is, that payment agreement can be used in lieu of the 5% of the unpaid outstanding collection account balance in the calculations of the borrower’s debt to income ratios. Again, this only applies for non-medical collection accounts with outstanding balances and not medical collection accounts. Medical collection accounts can be exempt no matter how much the unpaid outstanding medical collection account balance is unless the particular mortgage lender you choose has overlays on unpaid outstanding collection accounts.

FHA Loan With Unpaid Collection Accounts: Charge Off Accounts

FHA Borrowers can qualify for FHA Loans with charge off accounts. Charge off accounts are not calculated on the debt to income ratio calculations of the FHA Borrower and do not have to be paid off. There are many mortgage lenders that have overlays on charge off accounts where they want the FHA borrower to pay off the charge off accounts, However, that is not necessary. If you go to a mortgage lender and the lender asks you to pay off the charge off accounts or unpaid outstanding collection accounts, please contact me at 262-716-8151 or email me at gcho@gustancho.com. I have no lender overlays on outstanding collection accounts and charge off accounts.

Charge off accounts have balances reflected on them on consumer credit reports. That balance means that that amount was charged off and that does not mean that the amount listed on the charge off account is what the consumer owes.

FHA Loan With Unpaid Collection Accounts: Mortgage Charge Off Accounts

There are times where a FHA Borrower had a prior foreclosure and/or deed in lieu of foreclosure and there is a mortgage charge off after the borrower’s home loan has been foreclosed on. There is a three year waiting period after a mortgage charge off date which is reflected on the consumer’s credit report with an outstanding unpaid balance on a mortgage charge off. This applies for both a first mortgage charge off and second mortgage charge off. The waiting period after a mortgage charge off is four years from the date of the mortgage charge off date which is reflected on the borrower’s credit report to qualify for a conventional loan by Fannie Mae and/or Freddie Mac.

FHA Loan With Unpaid Collection Accounts: FHA Lender With No Overlays

If you have been told that you do not qualify for a FHA Loan With Unpaid Collection Accounts by a bank or different mortgage lender, please contact me at 262-716-8151 or email us at gcho@gustancho.com. We do not have any FHA Investor Overlays with not just collection accounts but also with any other FHA mortgage lending guidelines. We just go off the automated findings of the Automated Underwriting System and do not impose any investor FHA overlays. We are available 7 days a week, evenings, weekends, and holidays.

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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