FHA Charge Off Guidelines In Qualifying

FHA Charge Off Guidelines Explained

FHA Charge Off Guidelines state that FHA mortgage loan borrowers can qualify for FHA Loan with charge off accounts, no matter how large the charge off accounts are. There are two types of FHA Charge Off Guidelines. Non-mortgage FHA Charge Off Guidelines and mortgage FHA Charge Off Guidelines.

Charge Off Accounts are very common. A Charge Off Account is when a creditor deems the debt un-collectible and writes it off from their books. When a consumer defaults on his or her debt obligations, the creditor will try to contact the consumer. The creditor will try to call the consumer and will send them out letters demanding payment or for the consumer to contact them. Many consumers who owe debts and have debts in arrears normally ignore creditor’s phone calls and will not respond to collection letters by creditors. A creditor will normally try collecting on their debts for 90 days and will often charge off the account and/or assign it to a third party collection agency or sell the bad debt to a collection agency for a percentage amount of the outstanding debt. The collection agency will again try to collect on the consumer by making attempts to contact them and/or mailing out collection letters hoping that the consumer will respond. Many times, creditors will just charge off the credit account and write it off as a loss.

How Does Charge Off Accounts Affect My Chances Of Getting FHA Loan

FHA does not require charge off accounts to be paid and will not count any charge off accounts in the calculation of debt to income ratios no matter how much the charge off account is. Medical charge off accounts and non-medical charge off accounts are treated the same and both do not matter when qualifying for a FHA Loan.

However, many banks and mortgage lenders will have mortgage lender overlays on charge off accounts where they will not accept any mortgage borrowers with charge off accounts even though FHA does not care about charge off accounts. Mortgage lender overlays are requirements that banks and mortgage lenders set on top of the minimum FHA Guidelines set the United States Department of Housing and Urban Development, also known as HUD. HUD is the parent of the Federal Housing Administration, also known by most as FHA. An individual bank and/or mortgage company can require that a charge off account be paid off in order for them to accept a FHA loan borrower even though FHA does not require it. This is called a lender overlay.

FHA Charge Off Guidelines: Credit Disputes

FHA allow charge off accounts by FHA borrowers and mortgage lenders can ignore charge off accounts and not count charge off accounts in the debt to income ratio calculations. However, FHA Charge Off Guidelines state that you cannot have any credit disputes on charge off accounts. All credit disputes from charge off accounts needs to be retracted and there cannot be any credit disputes retracted on the mortgage borrower’s credit report. Mortgage loan originators need to carefully review mortgage borrower’s credit reports to make sure there are no credit disputes on charge off accounts prior to issuing a mortgage loan pre-approval letter . Retracting credit disputes during the mortgage approval process could result in the credit scores of the borrower to drop and can jeopardize in the mortgage loan borrower meeting the minimum credit score requirements to qualify for a FHA Loan.

FHA Charge Off Guidelines: Mortgage Charge Offs

FHA Charge Off Guidelines on mortgage charge offs are different than regular charge off accounts. There is a three year waiting period after the charge off date of the mortgage loan and/or three year period after the recorded date of the foreclosure, whichever is the later date. Most foreclosures happen prior to the mortgage charge off date so the mandatory waiting period will be three years from the charge off date to qualify for a FHA Loan. However, if the foreclosure and/or date of the sheriff sale happened after the mortgage charge off date, then the waiting period is three years from the date of the sheriff’s sale and/or date of the recorded date of the foreclosure to qualify for a FHA Loan.

All charge off accounts, including mortgage charge offs, have balances reported on the consumer’s credit report. Many mortgage lenders will tell mortgage loan borrower’s that they need to get the mortgage charge off balance removed or get a zero balance letter from the mortgage lender. This will not happen and the mortgage loan officer does not know how to read credit reports. All charge offs have balances on them and that balance reporting on the credit report is the charge off amount. Mortgage charge offs applies for both first and second mortgages.

If you have charge off accounts and/or mortgage charge off accounts and are told that you do not qualify for a FHA Loan due to the charge off accounts, please look no further and contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to take your 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.