2017 FHA Guidelines On Charge Offs And Collections

This BLOG On 2017 FHA Guidelines On Charge Offs And Collections Was UPDATED On July 15, 2017

FHA Guidelines allows home mortgage loan borrowers with charge offs, collections, and disputes to qualify for FHA loans. FHA Guidelines On Charge Offs And Collections does not require borrowers to pay outstanding collections and charge off accounts to qualify for FHA Loans.

There are two sets of mortgage lending guidelines:

There are two types of FHA Guidelines On Charge Offs And Collections:

  • The first set of guidelines are directly from FHA, the Federal Housing Administration.
  • The second set of  FHA Guidelines On Charge Offs And Collections are individual mortgage lender overlays. 
  • Mortgage lender overlays are mortgage lending guidelines that a particular mortgage lender will impose in addition to those set by the Federal Housing Administration, FHA. 
  • For example, FHA may allow a mortgage loan applicant with unpaid collection accounts to qualify for a FHA insured mortgage loan without having to pay it off under FHA Guidelines On Charge Offs And Collections. 
  • However, a particular mortgage lender may require all collection accounts to be paid off even though FHA does not require it. 
  • This is called mortgage lender overlays. 
  • Same with credit scores. 
  • FHA requires a minimum credit score of 580 FICO from any mortgage loan applicant for them to qualify for a 3.5% down payment home purchase FHA insured mortgage loan. 
  • Many, if not most, set their own standards with regards to minimum credit scores. 
  • Most mortgage companies do have mortgage lender overlays on minimum credit scores. 
  • Most require 620 FICO credit scores and a large percentage of mortgage lenders such as banks, credit unions, require 640 FICO credit scores or higher. 
  • FHA only requires a 580 FICO credit score to qualify for 3.5% down payment FHA Home Loan.
  • There are mortgage lenders, such as myself, that do not have any mortgage lender overlays and will just go off the minimum FHA mortgage lending guidelines. 
  • As long as you meet the minimum FHA guidelines, no overlays. 
  • To get a pre-approval now, please click on APPLY NOW FOR PRE-APPROVAL and get pre-approval in minutes.

FHA Guidelines On Unpaid Collection Accounts

FHA Guidelines does not require for you to pay off existing unpaid collection accounts.

However, FHA Guidelines does classify collection accounts into three separate categories:

  1. Non-Medical Collection Accounts
  2. Medical Collection Accounts
  3. Charge Off Accounts

Non-Medical Collection Accounts

Any non-medical collection account with a total aggregate unpaid balance of $1,000 is ignored by FHA  Guidelines unless the particular mortgage lender may have their own mortgage lender overlays on paying unpaid non-medical collection accounts.

  • If the unpaid non-medical collection accounts are greater than $1,000, then FHA requires mortgage lenders to take 5% of the unpaid collection balance and calculate it on the calculations of the debt to income ratios. 
  • If the 5% calculations is too much and will not qualify the mortgage loan applicant, then the mortgage loan applicant can make a written payment agreement with the collection agency and the amount agreed upon as the monthly payment will be used to calculate the debt to income ratios.

Medical Collection Accounts

Medical Collections are treated differently than non-medical collection accounts.

  • The 5% rule is exempt.
  • No matter how much the medical collection account outstanding balance is, no portion of it is taken out and used for debt to income ratio calculations.
  • Credit Disputes are exempt on medical collections.
  • Borrowers can have credit disputes on medical collections.

For medical collections, there is no restrictions on unpaid collection account balances and is often ignored unless the particular mortgage lender may have their own overlays.

Can I Qualify For FHA Loan With Charge Offs?

Old collection accounts who the creditor deems uncollectible are charged off on credit report.

  • HUD Guidelines On Charged Off Collection Accounts does not require borrowers to pay off outstanding charged off accounts to qualify for FHA Loans.
  • If a borrower goes to a lender and that lender tells the borrower that they do not qualify for a FHA Loan due to charge off, it is so because of that lender overlays and NOT FHA Guidelines.
  • Borrowers cannot have credit dispute on charged off accounts.
  • The credit dispute needs to be removed.
  • The mortgage process will come into a complete halt if there are credit dispute.
  • Once credit disputes are retracted, borrowers credit scores will drop.

What Are Charge Offs?

  • A charge off is when a creditor writes the debt off as uncollectible. 
  • Many consumers may have unpaid collection accounts that reports as charge offs on their credit reports. 
  • Charge offs do not count and FHA does not require any charge offs to be paid off since it has been written off. 
  • Also, those with charge offs will find it next to impossible to pay the charge offs because nobody can technically take their payments since it has been written off their books.

Qualifying For FHA Loans With Collections And Charge Offs

Home Buyers with Outstanding Collections and Charge Offs needing to qualify for FHA Loans with a lender with no FHA Lender Overlays, please contact us at 1-800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. We can help borrowers with prior credit issues in most of the 50 state

Related> Charge offs

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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