Do You Have To Pay Charge Offs With FHA Loans

0

Do You Have To Pay Charge Offs With FHA Loans?

Do You Have To Pay Charge Offs With FHA Loans

One of the most common questions I get is Do You Have To Pay Charge Offs With FHA Loans.

  • FHA does not require FHA Borrowers to pay off charge off accounts and collection accounts in order for borrowers to qualify for FHA Loans
  • Charge offs and medical collection accounts do not matter and does not matter in the calculations of the borrower’s debt to income ratios
  • Many mortgage loan originators tell borrowers who have charge off accounts that they do not qualify for FHA Loans with charge off accounts
  • Loan officers instruct borrowers they need to pay off their charge off accounts in order for them to qualify for a FHA Loan
  • This is absolutely not true and there are times where paying off a charge off account may create more damage than good, especially with paying off a second mortgage charge off account 

Do You Have To Pay Charge Offs With FHA Loans? What Are Charge Offs?

A charge off account is a collection account that a creditor has tried to collect on but eventually gave up on collecting on the collection account and has written the debt off their books.

  • Just because a creditor has charged off a collection account does not mean that the consumer is debt free and that the debt is forgiven
  • There are times where a charge off account that has been dormant for quite some time becomes reactivated
  • The creditor can hire a collection agency and/or sells the charge off account to a collection agency
  • The collection agency will aggressively go after the consumer in trying to collect on the charge off account
  • Most times if the creditor sees that it is next to impossible to collect on the consumer
  • This is because they feel that the consumer is judgment proof or has little or no assets and limited income, they will not pursue in collection activity on charge off accounts

Statute Of Limitations On Bad Debt

A consumer is free and clear from any liabilities on charge off accounts after they pass the statute of limitations period on the particular state where the debt was initiated.

  • Most states have statute of limitations on consumer debt for a period of five years
  • Consumers need to check on each state’s statute of limitations
  • Some collection agencies are ruthless and will try to collect on collection accounts and charge off accounts even after the statute of limitations period has expired
  • Most states have statute of limitations on judgments for 10 years
  • A judgment creditor can renew a judgment for another 10 years after the statute of limitations on a judgment has expired

Do You Have To Pay Charge Offs With FHA Loans And How Do Charge Offs Report On Credit Reports

All charge offs will report on all three credit bureaus;

  • Experian
  • Equifax
  • Transunion

Charge offs will report on consumer credit reports with a balance on the charge offs.

  • Unfortunately, many mortgage loan officers still do not know how to read credit reports
  • I get many phone calls by skeptical borrowers who were told that in order not to count a charge off account to qualify for a FHA Loan
  • They are told the charge off needs to be zero balance
  • The zero balance needs to be reporting on the consumer’s credit report
  • There is no such thing
  • All charge offs will report with a credit balance
  • This is because the outstanding balance that is reporting on the credit report is the amount the creditor has charged off
  • Again, with FHA, a FHA applicant does not have to pay off a charge off
  • Charge off accounts and collection accounts do not have to be paid off in order to qualify for a FHA Loan

If you are told that you need to pay off a charge off account by a mortgage lender, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com and I will be able to help you. Again, do not pay off any charge off accounts or collection accounts if you have them on your credit report and need to qualify for a FHA Loan.

Do You Have To Pay Charge Offs With FHA Loans And Mortgage Charge Offs

If you have a mortgage charge off accounts, you do not have to pay off the mortgage charge off account to qualify for a FHA Loan.

  • This applies for a first mortgage loan charge off account as well as a second mortgage loan charge off account
  • Paying off a mortgage charge off account will set you back big time
  • How this works is for FHA Loans, there is no waiting period after a second mortgage charge off
  • There is a three year waiting period to qualify for FHA Loans after first mortgage charge off
  • The waiting period is three years of a first mortgage charged off date which is reflected on the consumer’s credit report or three years from the charge off settlement date
  • If you pay off a mortgage charge off, whether it is a first mortgage charge off or second mortgage charge off, there is a three year waiting period from the settlement date of the mortgage charge off date.
  • All mortgage charge off accounts do have an outstanding balance reporting on the consumer’s credit report so do not worry about that
  • Again, a lot of borrowers who come to me were told by another mortgage loan originator that since that there is an outstanding balance reporting on the mortgage charge off that they need to pay off the mortgage charge off outstanding balance in order to qualify for a FHA Loan
  • Again, that is absolutely not the case
  • By paying your mortgage charge off balance, you will restart your mandatory 3 year waiting period to qualify for a FHA Loan
  • The same goes with Fannie Mae and Freddie Mac mortgage lending guidelines with a first and second mortgage charge off
  • With Conventional Loans, there is a four year mandatory waiting period after a first and/or second mortgage charge off from either the reported date of the charge off or the date the mortgage charge off account was settled, whichever is later
  • If you have a mortgage charge off account, again whether it is a first mortgage or second mortgage, there is a four year waiting period to qualify for a Fannie Mae or Freddie Mac Conventional Loan
  • However, if you end up settling the first or second mortgage charge off account at a later date after the original mortgage charge off date, then your 4 year waiting period will restart from the settlement date of your first or second mortgage charge off date

Do You Have To Pay Charge Offs With FHA Loans And How Do I Qualify?

Again, if you have charge off accounts or outstanding collection accounts, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates at Loan Cabin Inc. is a direct national lender with no overlays. Most of our borrowers are borrowers who could not qualify from other banks or lenders due to their mortgage lender overlays or were told the wrong information. I am available 7 days a week, evenings, weekends, and holidays.

This BLOG On Do You Have To Pay Charge Offs With FHA Loans Was UPDATED On October 4th, 2018

Leave A Reply

Your email address will not be published.

CALL NOW