Do I Have To Pay Charge Off To Qualify For FHA Loan?

Why Do I Have To Pay Charge Off To Qualify For FHA Loan?

I get this questioned asked several times a day: Why Do I Have To Pay Charge Off To Qualify For FHA Loan? Many home buyers who call me every day are told that they are told to pay off all of their charge off collection accounts by banks and other lenders they go to in order for them to qualify for FHA Loans. This is not true and many mortgage loan originators either are incompetent and do not know the HUD 4000.1 FHA Handbook where FHA Borrowers do not have to pay off any outstanding unpaid collection accounts and charge off accounts to qualify for a FHA insured mortgage loan. FHA exempts medical collections and charge off accounts from debt to income ratio calculations . Non-medical collection accounts with outstanding balances do not have to be paid to qualify for a FHA insured mortgage loan. However, if the outstanding collection account balances of all collection accounts is greater than $2,000, then FHA requires that 5% of the unpaid outstanding collection account balance is taken into account in the calculations of the borrower’s debt to income ratios on all non-medical outstanding unpaid collection accounts. If the 5% of the unpaid outstanding balances of the collection accounts is too high and will disqualify in the borrower meeting the minimum debt to income ratio limits, then the borrower can enter into a written payment agreement with the creditor and whatever the minimum monthly payment agreement is, that monthly agreement will be used in lieu of the 5% of the outstanding unpaid collection account balance. There is no minimum payment seasoning is required. The date the written payment agreement is executed, the monthly payment agreement that is agreed upon will go into effect and no 3 month seasoning is required like it is for judgments and IRS income tax written payment agreements.

Do I Have To Pay Charge Off To Qualify For FHA Loan? Why Do Lenders Require That Charge Off Be Paid Off?

Why Do I Have To Pay Charge Off To Qualify For FHA Loan is what many borrowers are told by banks and mortgage lenders. This is not a FHA Requirement but may be a mortgage lender overlay . What are mortgage lender overlays? Mortgage lender overlays are additional requirements that is imposed for mortgage loan borrowers by each individual bank and mortgage lenders that surpass HUD’s FHA minimum lending guidelines. HUD does not require that FHA mortgage borrower’s to pay off outstanding unpaid collection accounts and charge off accounts but a mortgage lender may require it. Those mortgage borrowers who are told that they do not qualify for a FHA Loan due to having outstanding collection accounts and charge off accounts and the only way that they will qualify for a FHA Loan is by paying off the charge off accounts and outstanding collection accounts, they need to find a different mortgage lender like myself where I do not have any mortgage lender overlays on charge off accounts and outstanding collection accounts.

Do I Have To Pay Charge Off To Qualify For FHA Loan? Dangers With Paying Off Mortgage Charge Off Accounts

You can qualify for a FHA Loan with second mortgage charge off accounts without having to pay off the second mortgage charge off account balance. Unfortunately, there are many bankers and mortgage loan officers that tell the FHA mortgage borrower that they need to pay off the second mortgage charge off account. This is the worst mistake a FHA Borrower can ever make because if you pay off the second mortgage charge off account, that resets the statute of limitations and the three year mandatory waiting period to qualify for a FHA Loan after a second mortgage charge off. HUD Guidelines on qualifying for a FHA Loan after a second mortgage charge off is three years from the date of the second mortgage charge off that is reflected on the borrower’s credit report and/or the date of the second mortgage charge off settlement date whichever is later. Paying off the second mortgage charge off account will restart the three year waiting period to qualify for a FHA Loan. If a mortgage lender is telling you that you do not qualify for a FHA Loan because there is an outstanding balance on your credit report due to the second mortgage charge off account, you need to explain to the mortgage loan originator that most charge off accounts, whether they are regular consumer charge off accounts or first or second mortgage charge off accounts, there are always an outstanding unpaid collection account balance reporting on all charge off accounts. Unfortunately, many mortgage loan officers still do not know this and are really screwing up by telling borrowers to pay off the charge off accounts where they do not need to pay it off.

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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