Fannie Mae Collection Guidelines on Conventional Loans

This blog will cover Fannie Mae Collection Guidelines on Conventional loans. Fannie Mae and Freddie Mac are the two mortgage giants that regulate agency guidelines on conventional loans. The two mortgage giants are the largest buyers of mortgages on the secondary market. In the following paragraphs, we will cover and discuss Fannie Mae collection guidelines on conventional loans. In the following paragraphs, we will cover Fannie Mae collection guidelines on conventional loans.

What Are Conforming Versus Non-Conforming Mortgage Loans?

Conventional loans are often referred to as conforming loans. This is because conventional loans must conform to Fannie Mae and Freddie Mac agency guidelines for the two giant Government Sponsored Enterprises (GSE) to purchase mortgages. The two GSEs only buy mortgages that conform to their guidelines.

Any mortgages that do not meet Fannie/Freddie Guidelines are called non-conforming loans. Fannie Mae and Freddie Mac have specific conforming loan guidelines on collections and charged-off accounts depending on whether it is owner-occupant primary residence homes, second homes, or investment property loans.

Conventional Loan Collection And Charged-Off Account Requirements And Guidelines

Outstanding collection and charged-off accounts do not have to be paid off to qualify for conventional loans if and only if borrowers are financing an owner-occupant primary home. Many people are under the assumption that conventional loans are for borrowers with great credit. This is true. Fannie Mae and Freddie Mae have higher credit requirements on conventional loans than other mortgage loan programs. Many assume that all collection and charged-off accounts must be paid to qualify for conventional loans. This is not the case. It is correct that conventional loans have higher lending standards than government loans.

Borrowers can qualify for conventional loans with less-than-perfect credit. Conventional loan guidelines on outstanding collections and/or charged-off accounts do not require outstanding collection/charged-off accounts to be paid to qualify for conventional loans. There are specific guidelines on collection and charged-off accounts depending on the type of conventional loan program. Mortgage agency guidelines on collection and charged-off accounts differ on primary owner-occupant mortgages, second homes, and investment properties.

The Importance of Getting an Approve/Eligible Per Automated Underwriting System on Conventional Loans With Bad Credit

Borrowers can qualify for Conventional Loans with outstanding collections and charge-off accounts. This only holds true if the borrower can get approve/eligible per the automated underwriting system (AUS).

Fannie Mae Collection Guidelines are specific for primary, second homes, two to four units, and investment property conventional loans. Fannie Mae Collection Guidelines on primary home loans differ from investment conventional loans.

Fannie Mae Collection Guidelines For One-Unit Primary Conventional Loans

Fannie Mae Collection Guidelines on primary single-family homes are very lenient. For primary single-family properties, borrowers do not have to pay outstanding collections accounts to qualify for conventional loans. Borrowers are not required to pay outstanding charged-off accounts either on the owner-occupant primary home financing. Here is what Fannie Mae States With Regards To Fannie Mae Collection Guidelines:

Fannie Mae Collection Guidelines on 2 To 4 Unit Properties and Second Homes

Fannie Mae Guidelines On collections and charge-off accounts on Single-Unit Primary Owner-Occupant  Conventional loans. Outstanding collection and charge-off accounts do not have to be paid on primary owner-occupant one-unit conventional loans.

With non-medical outstanding collections with a balance of over $2,000, Fannie Mae does NOT require mortgage underwriters to take 5% of the outstanding collection balance and use it as a hypothetical monthly debt like FHA loans. Borrowers do not have to pay anything. The 5% hypothetical debt rule used for debt-to-income ratio calculations does not apply to conventional loans.

How Collection Accounts Affect Borrower’s Debt-To-Income Ratio Calculations

For more information about this blog or other mortgage-related topics, please contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

The team at Gustan Cho Associates of veteran mortgage professionals are ready to answer any questions home buyers or homeowners with mortgage inquiries. Gustan Cho Associates Information Resource Center is a group of real estate and mortgage industry experts, which includes the following: real estate agents, residential mortgage loan officers, and industry experts whose mission is to provide information about real estate, conforming loans, non-conforming loans, and specialty financing programs. The mortgage industry is so complex, with new regulations that are constantly changing. New rules and regulations are being implemented, and our goal is to express the opinions of industry experts and offer their opinions. Company NMLS 1660690 Branch NMLS 2315275

Gustan Cho Associates is a national mortgage company with no lender overlays on government and conventional loans. Over 75% of our borrowers at Gustan Cho Associates could not qualify at other lenders due to their lender overlays.  We also offer dozens of non-QM and alternative financing mortgage programs. 

Fannie Mae Collection Guidelines on Second Homes require any collections and charge-off accounts greater than $5,000 to be paid at and before closing. The maximum outstanding and charge-off account borrowers can have on their credit report is $5,000 when buying a second home.

Fannie Mae Conventional Loan Guidelines on Collections and Charge-Offs on Two-To-Four Unit Homes

Fannie Mae Collection Guidelines on two to four-unit multi-family properties require any outstanding collections and charge-off accounts greater than $5,000 to be paid off. This is not the case when qualifying for a primary one-unit home. Per Fannie Mae Collection Guidelines, borrowers with outstanding collection and charged-off accounts do not have to pay them off if they qualify for a one-unit primary owner-occupant home. Here is what Fannie Mae states on Fannie Mae Collection Guidelines On 2 To 4-Unit Properties:

Fannie Mae and Freddie Mac Conventional Loan Guidelines on Collection and Charge-Off Accounts on Investment Homes

Investment properties have stricter guidelines regarding outstanding collections and charge-off accounts. This is because investment properties are considered riskier investments. Mortgage rates on investment properties are substantially higher than owner-occupant primary homes due to layered risks on investment versus owner-occupant homes. Here are the guidelines on collections and charge-off accounts when it comes to investment properties:

• If the borrower has outstanding collections and charged-off over $250, the unpaid outstanding balance must be paid off to qualify for investment conventional loans.

If the borrower has a total of $1,000 or greater in total collections and charge-off accounts on their credit report, it needs to be paid off if they need to qualify for investment property loans.

Does Older Outstanding Collections Count Towards Debt-To-Income Ratio Calculations

In this paragraph, we will compare FHA Versus Fannie Mae Collection Guidelines. Here are HUD Guidelines on collections and charge-off accounts on FHA loans:

• Outstanding collections and charge-off accounts do not have to be paid to qualify for FHA loans
• However, with non-medical outstanding collections with a balance of over $2,000, HUD requires mortgage underwriters to take 5% of the outstanding collection balance and use it as a hypothetical monthly debt.
• This holds true even though borrowers do not have to pay
• This only holds true on non-medical collections
• Medical collections and charge-off accounts are exempt from the 5% rule

This holds true no matter how large the outstanding balance of the medical collection and charged-off account is.

Fannie Mae Guidelines on Collections and Charged-Off Accounts on Single-Unit Owner-Occupant Primary Homes

Fannie Mae Guidelines On collections and charge-off accounts on Single-Unit Primary Owner-Occupant  Conventional loans. Outstanding collection and charge-off accounts do not have to be paid on primary owner-occupant one-unit conventional loans.

With non-medical outstanding collections with a balance of over $2,000, Fannie Mae does NOT require mortgage underwriters to take 5% of the outstanding collection balance and use it as a hypothetical monthly debt like FHA loans. Borrowers do not have to pay anything. The 5% hypothetical debt rule used for debt-to-income ratio calculations does not apply to conventional loans.

How Collection Accounts Affect Borrower’s Debt-To-Income Ratio Calculations

For more information about this blog or other mortgage-related topics, please contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

The team at Gustan Cho Associates of veteran mortgage professionals are ready to answer any questions home buyers or homeowners with mortgage inquiries. Gustan Cho Associates Information Resource Center is a group of real estate and mortgage industry experts, which includes the following: real estate agents, residential mortgage loan officers, and industry experts whose mission is to provide information about real estate, conforming loans, non-conforming loans, and specialty financing programs. The mortgage industry is so complex, with new regulations that are constantly changing. New rules and regulations are being implemented, and our goal is to express the opinions of industry experts and offer their opinions. Company NMLS 1660690 Branch NMLS 2315275

Gustan Cho Associates is a national mortgage company with no lender overlays on government and conventional loans. Over 75% of our borrowers at Gustan Cho Associates could not qualify at other lenders due to their lender overlays.  We also offer dozens of non-QM and alternative financing mortgage programs.