2016 Conventional Loan Collection Accounts Guidelines

2016 Update On Conventional Loan Collection Accounts Guidelines

Conventional Loan Collection Accounts Guidelines for 2016 are implemented and set by Fannie Mae and Freddie Mac .  FHA, part of the United States Department of Housing and Urban Development or known as HUD, set the mortgage lending guidelines pertaining to FHA Loans. Both Fannie Mae and HUD has separate mortgage lending guidelines pertaining to outstanding collection accounts and charge off accounts when qualifying for a home loan. Conventional Loan Collection Accounts Guidelines state that conventional mortgage loan borrowers can qualify for conventional loans with unpaid outstanding collection accounts and charge off accounts without having to have them paid off.

Conventional Loan Collection Accounts Guidelines: Past Due Accounts, Collection Accounts, And Charge Off Accounts

On this blog article, we will be discussing non-mortgage conventional loan collection accounts guidelines set by Fannie Mae. Under Fannie Mae Guidelines, credit accounts that are reported past due on a consumer’s credit report which are not reported as collection accounts, must be brought current and up to date in order for the mortgage loan borrower to qualify for a conventional loan.

If a conventional mortgage borrower is qualifying for a one unit owner occupant principal residential property, the conventional mortgage borrower is not required to pay off any unpaid outstanding collection accounts and/or non-mortgage charge off accounts regardless of the collection account balance.

If a conventional mortgage borrower is qualifying to purchase a two to four unit owner occupant property and second home property, unpaid outstanding collection accounts and/or non-mortgage charge offs that total more than $5,000 needs to be paid in full prior to or at closing.

If a conventional mortgage loan borrower is qualifying to purchase an investment property, and individual unpaid outstanding collection accounts and non-mortgage charge off collection accounts that equal or is greater than $250 and collection accounts that total more than $1,000 must be paid in full prior to or at closing.

FHA Versus Conventional Collection Accounts Guidelines

FHA has different guidelines on outstanding collection accounts than Conventional Loans. FHA classifies collection accounts into three categories:

  1. Medical Collection Accounts
  2. Non-Medical Collection Accounts
  3. Charge Off Accounts

FHA exempts medical collection accounts and charge off accounts from debt to income ratio calculations . However, non-medical collection accounts with outstanding balances of greater than $2,000 FHA requires that 5% of the outstanding unpaid collection account balance needs to be used to calculate the borrower’s debt to income ratios even though the mortgage loan borrower does not have to pay anything. This does not apply for Conventional Loans on primary one unit owner occupant properties.

Mortgage Lender Overlays On Conventional Loans

A large percentage of my borrowers come to me because they could not qualify at other banks and/or mortgage companies because they have outstanding collection accounts. Most banks and mortgage companies will not approve a mortgage loan borrower with unpaid outstanding collection accounts and/or charge off accounts unless it has been paid in full and reflected that it has been paid in full on their credit reports. Some banks and mortgage lenders will even take a step further and require that the collection accounts and charge offs have been paid in full and seasoned for at least two years. How can this be when Conventional Loan Collection Accounts Guidelines do not require outstanding collection accounts and non-mortgage charge off accounts to be paid to qualify for a conventional loan? The reason banks and many mortgage companies require that all unpaid outstanding collection accounts be paid in full when Fannie Mae and Freddie Mac does not require it paid off is due to mortgage lender overlays . Mortgage lender overlays are additional mortgage guidelines that are set on top of the minimum lending guidelines by Fannie Mae and Freddie Mac. It is not illegal for a bank or mortgage lender to add additional lending requirements and standards on top of the minimum mortgage lending guidelines required by Fannie Mae and Freddie Mac.

If you are a home buyer or homeowner who needs a conventional loan but have outstanding collection accounts and/or non-mortgage charge off accounts and need a conventional mortgage lender with no lender overlays, please call me at 262-716-8151 or email me at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer any questions you may have.

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.

Comments are closed.