How Do Underwriters View Charge Off Accounts With Balances

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Qualifying For Mortgage With Charge Off Accounts With Balances

This BLOG On How Do Underwriters View Charge Off Accounts With Balances Was UPDATED On August 27th, 2018

Home Buyers Can Now Qualify Mortgages With Charge Off Accounts With Balances.

  • All government and conventional loans that are owner occupant home loans does not require outstanding collections and charged off accounts to be paid in order for borrowers to qualify for mortgage
  • However, HUD, the parent of FHA, has the most lenient mortgage guidelines when it comes to qualifying for mortgage with charge off accounts with balances
  • Fannie Mae and Freddie Mac Automated Underwriting Systems by far are far more lenient when it comes to borrowers with outstanding collections and charge off accounts with balances than VA, USDA, and Conventional Loans

How Lenders View Borrowers Likelihood To Repay

The two most important factors in qualifying for FHA Loans is credit and income.

  • Mortgage borrowers can have low credit scores, prior bad credit, outstanding collection accounts, judgments, tax liens
  • As long as borrowers have documented income, they can qualify for mortgage loan
  • However, borrowers can have the highest credit scores possible, over 800 credit scores, and perfect payment history with aged credit tradelines but with no documented income, there is no way they can qualify for government and/or conventional loans
  • Days of obtaining home loans with no income documentations and stated income have long been gone
  • There are rumors that no doc and stated income mortgage loan programs may come back
  • However, the million dollar question is when
  • Bad credit mortgage loans is a huge market in the mortgage industry due to the hundreds of millions of Americans hurt by the 2008 Real Estate And Mortgage Meltdown
  • Every social and economic class of Americans got victimized by the Great Recession of 2008
  • Doctors, lawyers, teachers, fire fighters, police officers, accountants, contractors, bankers, loan officers, realtors, laborers, minimum wage hourly workers, and even multi millionaires got hit by the greatest recession this country ever went through
  • There are folks who have lost their entire fortune and had to start their lives all over again, especially those in the real estate and mortgage industries
  • Multi millionaires went to total bust and some had to start working for minimum wage
  • Fortunately, many have turned their lives around and have adjusted to their new financial and economic lifestyles where some found brand new careers and re-established their credit
  • Those who have lost their home due to bankruptcy and foreclosure can now have a fresh start in life and become homeowners again
  • Many of those who have bad credit and did not file bankruptcy can now qualify for mortgage with charge off accounts with balances
  • FHA does not require borrowers to pay off charge off accounts with balances to qualify
  • Two bad credit items that are exempt by the Federal Housing Administration DTI Calculations are charge off accounts with balances and medical collections

What Are Charge Off Accounts With Balances?

Charge off accounts are when a creditor will write the debt off their books and charge it off.

  • A charged off account does not relieve the debtor of the debt
  • The charged off account can be re-sold for pennies on the dollar to a collection agency where they will try to attempt to collect the debt
  • One of the most common questions I get asked everyday, not just by consumers but also by mortgage loan originators, is how mortgage underwriters treat charge off accounts with balances
  • There are so many rules and regulations in the mortgage industry these days that it is impossible for every licensed mortgage loan originator to know all the rules and regulations in residential mortgage lending
  • Many mortgage loan originators will read the FHA 4000.1 Handbook
  • HUD 4000.1 FHA Handbook states that charge off accounts and medical collection accounts are exempt from debt to income qualification requirements
  • However, FHA 4000.1 Handbook does not explain charge off accounts with balances
  • The mortgage loan officer then asks their managers and underwriters and most often are told that the charge off accounts needs to have zero balances
  • Unfortunately, many loan officers will see that all charge off accounts have balances on them so they tell borrowers that they do not qualify for a mortgage loan unless it has been settled
  • There are countless of call I get daily from other mortgage loan officers denying the mortgage loan applicants because they have charge off accounts with balances reporting on their credit reports
  • The bottom line with charge off accounts with balances that report on credit reports is that all charge off accounts will have balances attached to them
  • This WILL NOT affect borrowers from qualifying for a FHA Loan and/or any other government and/or conventional loan
  • Borrowers who are told by their mortgage loan officer they need to pay off the charge off account with balances, number one is that most important fact is most of the time consumers cannot pay off a charge off account with balances on them because the account was written off
  • Secondly, the reason why there is a balance on the credit report under the charge off account is because that is the amount that was written off

Mortgage borrowers with outstanding collections and/or charge off accounts with balances who were told they do not qualify for a FHA Loan because there is an outstanding balance there, please contact us at Gustan Cho Associates Mortgage Group 262-716-8151 or text us for faster response.  We will definitely get borrowers approved with charge off with balances as well as outstanding collections without them having to have it paid off.

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