Alex Carlucci The Mortgage Expert,
Publish On: January 28, 2022
In this blog, we will discuss and cover FHA guidelines on collections charge-off accounts. The United States Department of Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA). FHA is not a lender. The Federal Housing Administration is a government agency under HUD. The role of HUD is to insure private lenders against borrower default on FHA loans.
Government Guarantee on FHA Loans
Due to this government guarantee, banks and lenders who are HUD Approved can originate and fund FHA Loans at very low-interest rates with a 3.5% down payment. HUD created FHA to promote homeownership to hard-working Americans with low down payment and less than perfect credit. HUD Guidelines are far more lenient than other loan programs. HUD believes in giving people second chances of becoming homeowners after periods of bad credit, foreclosure, bankruptcy, and short sale. In this article, we will cover and discuss qualifying for an FHA loan with outstanding charged-offs and collection accounts.
Qualified Income & Prior Bad Credit In Qualifying For FHA Loans
Income, credit, debts, assets, and liabilities are all factors involved in the whole mortgage application and approval process. Qualified income, credit, credit scores, and credit reports are what decide whether borrowers qualify for FHA loans. Income, credit, credit scores, and credit report determines whether the mortgage application file will proceed to the next stage. The next stage is mortgage loan processing and mortgage loan underwriting.
Credit Report: FHA Guidelines On Collections Charge Offs Disputes Judgments
The borrowers’ credit report is initially analyzed by the mortgage loan originator. If there is a problem, the mortgage loan originator will go over it with the borrowers. Both mortgage loan officers and mortgage processors will determine whether there is a quick fix or not. Some of the items that will be scrutinized to meet FHA Guidelines On Collections Charge Offs Disputes Judgments.
Collection Accounts And Charge Offs
Depending on the lender they may have overlays on derogatory credit. HUD Guidelines On Outstanding Collections and Judgments are specific. Lenders with no overlays will just go off FHA Guidelines On Collections Charge Offs Disputes Judgments. However, lenders can have tougher standards and have overlays on collections, charge-offs, disputes, judgments. Outstanding collections with unpaid balances are allowed as well as charge offs. Gustan Cho Associates is a national five-star lender with no overlays on government and conventional loans. We do not require open collections to be paid off for FHA-insured mortgage loans. Same with charge-offs. Gustan Cho Associates Mortgage Group does not care for charge-offs.
Credit Disputes During The Mortgage Process
Credit disputes with credit balances are not allowed under any circumstances on non-medical collections, charge off accounts, and late payments. Many borrowers who enter into a credit repair program dispute all of their derogatory items hoping that the derogatory will be removed from their credit reports. Unfortunately, credit disputes with balances are not allowed in the mortgage application process. The credit disputes need to be removed in order for the mortgage loan application to move forward. Medical credit disputes are exempt. Non-medical credit disputes with zero outstanding balances are also exempt. If borrowers have less than $1,000 in total outstanding collection balances on all of their non-medical collection accounts, it is also exempt from retracting credit disputes.
FHA Guidelines On Collections Charge Offs Disputes Judgments On Retracting Credit Disputes
The credit dispute either needs to be retracted by the three major credit reporting agencies or the disputed item with a credit balance needs to be paid off in full. The payment needs to be recorded to all three credit reporting agencies before the mortgage application can proceed to the next stage. This requirement is not a mortgage lender overlay. This rule is government and conventional mortgage guidelines.
Click Here is How To Retract Credit Disputes
Qualifying For FHA Loans With Judgments And Tax Liens
Judgments and tax liens are probably the most adverse derogatory credit anyone can have on their credit reports next to a bankruptcy and/or foreclosure. Most banks and mortgage bankers will not allow or approve a mortgage loan borrower who has an unsatisfied judgment or tax lien. Gustan Cho Associates is a national five-star mortgage company licensed in multiple states with no lender overlays.
Written Payment Agreement With Judgment Creditors and/or IRS
We do allow borrowers who have a judgment and/or tax lien on their credit report to qualify for FHA loans. However, borrowers need to have a repayment agreement in place. Borrowers need a written payment agreement from the judgment creditor and/or IRS. Borrowers need a record of paying the judgment creditor and/or the Internal Revenue Service three canceled checks and/or bank statements. A three-month history needs to be proven by three months of canceled checks. As long as the payment agreement and three-month payment history have been established, I can provide borrowers with a mortgage loan approval. We can proceed to the next stage of the mortgage loan approval process.
Lender Overlays Versus FHA Guidelines On Collections Charge Offs Disputes Judgments
Over 75% of our borrowers at Gustan Cho Associates are folks who either got denied by other lenders or are stressed during their FHA mortgage process. There are two types of FHA Guidelines On Collections Charge Offs Disputes Judgments:
- Lenders Overlays
- FHA Guidelines On Collections Charge Offs Disputes Judgments
Agency Guidelines Versus Lender Overlays
Not all lenders need to follow FHA Guidelines On Collections Charge Offs Disputes Judgments. Every lender can set higher standards that are above and beyond FHA Guidelines On Collections Charge Offs Disputes Judgments. These higher standards are called lender overlays.
Common Overlays By Mortgage Lenders
Here are typical lender overlays:
- Pay off outstanding collections and charge off accounts
- Pay off outstanding tax liens
- Pay off outstanding judgments
- Removal of medical and other exempt credit disputes
- Higher credit scores than the minimum 580 required by FHA to qualify for 3.5% down payment home purchase FHA Loans
- Verification of Rent when the Automated Underwriting System does not require it
- Minimum credit tradelines requirements when AUS does not require it
- Conditions above and beyond what Automated Underwriting System require
Gustan Cho Associates is a national lender with no lender overlays. We just go off AUS findings. Home Buyers who need to qualify with a direct lender with no lender overlays on government and conventional loans, please contact us at 800-900-8569 for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays via phone or email at gcho@gustancho.com.
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