What Is A Charge Off And How Does It Affect Mortgages

What Is A Charge Off And How Does It Affect Mortgages

Many consumers are confused what a charged off is and whether a charge off collection account affects them in getting a mortgage loan. A charged off account is when a creditor of a debt determines that the debt that the consumer owes is not likely to be collectible. When a consumer stops making payments on their monthly payment obligations for quite some time, the creditor will charge it off and classify it as a charge off account. A charged off is similar to a write off.. Most creditors will charge off a debtor’s accounts when the debtor stops making payments for six months.

How Does Charge Off Accounts Work And Am I Off The Hook?

Creditors will charge off a debt once they have tried to collect the debt via phone calls, mail, or email. Normally when a debtor stops making payments on their debt and the debt is still not collectible, the creditor writes off the debt and classifies it as a charge off. However, just because a debt is charged off does not relieve the consumer from their debt obligations. Many folks think that just because the creditor charged off a collection account that they are free and clear of any liabilities from that debt. This can be true if the creditor does not do anything to collect on the debt and the statute of limitations runs out but the fact of the matter is that you are still liable for the charge account unless the following:

  • File bankruptcy and the charge off is part of bankruptcy
  • Statute of Limitations on debt passes. Statute of Limitations on credit card debts depends on each states. Most states have statute of limitations on credit card debts between 3 to 7 years
  • You can always settle charge off accounts for less than the original amount
  • A charge off account will not hinder your chances of getting a mortgage loan

Creditors are required to charge off installment debts after 120 days of the date of last activity by federal regulators. Revolving debts, which are credit card accounts are normally charged off after 180 days after the date of last activity. Charge offs by creditors is part of the cost of doing business.

How Do Charge Offs And Its Effects On Consumer Credit?

A 30 day late payment on your credit report will drop your credit scores significantly. A charged off account will have a negative impact and drop your credit scores. Here is how a charged off credit account will remain on your credit report:
  • A charged offs will remain on your credit report for a period of seven years from the date of last activity or DLA
  • The charged off dollar amount will be stated on your credit report
  • If the charged off account is paid in full, the verbiage that the charge off is paid in full will be listed on your credit report as charge off account paid in full
  • If the charged off credit account is paid less than the full amount and settled for that amount, the verbiage that it has been settled than the full amount will be listed on the credit report
  • The Federal Reserve System will investigate banks with consistent periodic charge off accounts. Although charge offs are part of cost of doing business, if charge offs increases significantly and/or grows, alerts may be set off and operating procedures of the creditor may be scrutinized.

Can I Qualify For A Mortgage With Charge Offs?

Charge offs are ignored by mortgage lenders with no overlays. Borrowers do not have to pay off outstanding charged off accounts to qualify for FHA Loans and other loan programs as long as you deal with a lender who has no lender overlays. If you have outstanding charge off accounts and are told that you need to pay off the outstanding charged off accounts in order to qualify for a FHA Loan, contact Gustan Cho at 262-878-1965 or text Gustan Cho at on his cell at 262-716-8151 for faster response. The Gustan Cho Team represents a national five star FANNIE MAE, FREDDIE MAC, GINNIE MAE Direct Lender with no lender overlays. You can also 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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