How Do Charge Offs Affect Mortgage Approval Process

How Do Charge Offs Affect Mortgage Approval Process

This BLOG On How Do Charge Offs Affect Mortgage Approval Process Was UPDATED On January 15th, 2018

Charge off are debts that a creditor has tried collecting by consumers and eventually deemed it an uncollectible debt and has charged it off on their books.

  • Credit Card companies and other revolving debt creditors normally charge off a debt after 120 days. It is them removed from their accounting balance sheet
  • Charged Off Accounts has a balance stated on consumer credit report
  • It may have the verbiage charge off account and/or profit and loss
  • Regardless, mortgage borrowers can get FHA Loans approved with outstanding charged off accounts without having to pay the outstanding collection balance off

How Do Charge Off Accounts Work

Charge Offs is when a creditor deems a debt not collectible and writes it off on their books. Just because a consumer is charged off on a debt does not relieve them from paying the debt. Many creditors will sell their charged off accounts to third part collection agencies for pennies on the dollar. The good news is that home buyers can qualify for mortgage with outstanding charged off accounts and collection accounts.

  • Most creditors consider delinquent debts as charge offs after four to six months
  • Creditors figure if the debtor has not made any attempt in paying their debt in six months, they will have no intention on paying it in the future and do not want it on their balance sheet as an asset
  • Charge off debts are reported on a person’s credit report as charge off accounts
  • It will remain on the person’s credit report for a period of 7 years from the date of last activity, which is the date of last payment

Charge Off Accounts Sold To Third Party Collection Agencies

A creditor can sell charge offs to a third party collection agency for pennies on the dollar and the third party collection agency can try to collect on the charge off debt at full face value plus interest and fees.

  • The creditor and/or collection agency also can try to sue consumers in court and have a judgment issued
  • However, most charge off accounts do not go through the court system since suing consumers will cost them money in attorneys and court costs

How Charged Off Accounts Affects Credit And Mortgage Approval Process

Recent charge off debts will definitely plummet credit scores and might affect consumers in getting new credit.

  • However, as time passes, charge off debts will have less and less impact on credit scores
  • Charge off debts that has been aged more than two years will not have any impact on credit scores
  • Charge off accounts will remain on credit report for a period of seven years
  • After the seven years are up, the charge offs will be deleted off credit reports
  • Home Buyers can qualify for home loans with outstanding charged off accounts 
  • FHA, VA, USDA, FANNIE MAE, FREDDIE MAC does not require that charged off accounts be paid

Borrowers who have charge offs and outstanding collections and need a direct lender with no mortgage overlays to qualify for mortgage, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151. Text us for faster response.

Statute Of Limitations And Charge Offs

Technically, even you have charge offs, you still owe that debt until the statute of limitations runs out.

  • Statute of Limitation on charge offs depend on the state consumers reside in
  • But most statute of limitations on charge off debts in most states is 5 years
  • Aged charged off accounts have no impact on you getting a home buyer a mortgage loan approval
  • Recent charge offs that is less than a year can create a problem but any charge offs of a year or older is fine
  • A letter of explanation is required

Qualifying For Mortgage With Charge Offs And Collections

Most mortgage lenders will have borrowers pay outstanding charge offs and collection accounts. However, HUD Guidelines, VA Guidelines, and even Fannie Mae and/or Freddie Mac does not require borrowers to pay outstanding charge offs and collection accounts to qualify for mortgage loans. If a bank and/or lender tells borrowers that charge offs and collections needs to be paid off, then that lender has mortgage overlays on charge off accounts and collection accounts. Borrowers who have less than perfect credit and outstanding charge offs and collection accounts and need a direct lender with no mortgage overlays, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays.

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