Conventional Loan With Collection Accounts

Gustan Cho Associates

Guidelines On Conventional Loan With Collection Accounts

Can you qualify for conventional loan with collection accounts? Home buyers can qualify for home loans with collection accounts. Every mortgage loan program have different mortgage lending guidelines when it comes to unpaid collection accounts, charge offs, tax liens, and judgments.  FHA Loans has the most lenient mortgage lending guidelines with regards to unpaid collection accounts, charge offs, tax liens, and judgments.  Guidelines on Conventional Loan with Collection Accounts are probably the most strict out of all mortgage loan programs.  We will do a comparison and contrast on conventional loan with collection accounts and FHA Loan with collection accounts.

Requirements For Conventional Loan With Collection Accounts

Conventional lending guidelines are much different than FHA mortgage lending guidelines with regards to unpaid collection accounts, charge offs, tax liens, and judgments.  All unpaid collection accounts, charge offs, will need to be paid at or prior to closing the home loan.  Tax liens and judgments need to be paid at or prior to closing.  Collection accounts of $250 or less or total aggregate unpaid balance of $1,000 or less may be exempt upon underwriter’s discretion.

Requirements For FHA Loan With Collection Accounts

FHA mortgage lending guidelines does not require collection accounts to be paid.  Medical collection accounts are totally exempt.  For non-medical collection accounts, if the aggregate unpaid balance of collection accounts is greater than $1,000, then 5% of the unpaid collection account balance will be used towards debt to income calculations.  For example, if a mortgage loan borrower has $20,000 worth of unpaid collection accounts, then 5% of the unpaid $20,000 total aggregate collection account balance, or $1,000 will be used to calculate the mortgage loan borrower’s debt to income ratios even though the $1,000 per month does not have to be paid.  FHA also allows a written payment agreement arrangement with unpaid collection accounts in lieu of the 5% collection account balance calculation.  For example, if the mortgage loan borrower has a total unpaid collection account balance with a collection agency and/or creditor of $20,000 and makes a written payment agreement with the creditor and/or collection agency for $300 per month, that $300 per month will be used in lieu of the 5% of the $20,000, or $1,000, in the calculation of debt to income ratios.

Judgment And Tax Liens With FHA Loans

FHA mortgage lending guidelines are very generous with lending requirements for home buyers and homeowners wanting to refinance their current home loans with judgments, tax liens, and other liens such as mechanics liens.  FHA allows mortgage loan borrowers who have judgments and tax liens to set up a written payment agreement with the judgment creditor or the Internal Revenue Service and as long as they have a three month seasoning with making payments, they can qualify for a FHA insured mortgage loan.

FHA Loan Is The Way To Go If You Have Collection Accounts

If you have unpaid collection accounts, charge offs, judgments, and tax liens, FHA Loan programs may be your better bet than going with a conventional loan due to the more lax mortgage lending guidelines.

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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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