FHA Guidelines On Collections Charge Offs Disputes Judgments

This BLOG On FHA Guidelines On Collections Charge Offs Disputes Judgments Was UPDATED On October 7th, 2017

The United States Department of Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA).

  • FHA is not a lender but a government agency under HUD that insures private lenders against borrower default on FHA Loans.
  • Due to this government guarantee, banks and mortgage lenders who are FHA Approved can originate and fund FHA Loans at very low interest rates with 3.5% down payment.
  • HUD created FHA to promote home ownership to hard working Americans with low down payment and less than perfect credit.
  • FHA Guidelines On Collections Charge Offs Disputes Judgments are far more lenient that other loan programs.
  • FHA believes in giving people second chances of becoming homeowners after periods of bad credit, foreclosure, bankruptcy, and short sale. 

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 report is what decides whether borrowers qualify for FHA Loans.
  • Income, credit, credit scores, and credit report determines whether 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

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 borrowers.
  • Both mortgage loan officer and mortgage loan processor 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 mortgage lender they may have overlays on derogatory credit.

  • FHA Guidelines On Collections Charge Offs Disputes 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. 
  • The Gustan Cho Team at USA Mortgage are direct lenders with no overlays on government and conventional loans.
  • We do not require for open collections to be paid off for FHA insured mortgage loans. 
  • Same with charge offs. 
  • We do not care for charge offs. 

Credit Disputes During Mortgage Process

Credit disputes with credit balances are not allowed under any circumstances on non-medical collections, charge off accounts, and late payments.

Many mortgage loan 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 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.

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 are 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.

  • The Gustan Cho Team at USA Mortgage are direct lenders with no lender overlays.
  • We do allow mortgage loan borrowers who has a judgment and/or tax lien on their credit report qualify for FHA Loans.
  • However, the mortgage loan borrowers needs 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 statement.
  • A three month history which needs to be proven by three months cancelled checks. 
  • As long as the payment agreement and three month payment history has been established, I can provide borrowers with a mortgage loan approval.
  • We can proceed to the next stage of mortgage loan approval process.

Lender Overlays Versus FHA Guidelines On Collections Charge Offs Disputes Judgments

Over 75% of our borrowers at The Gustan Cho Team at USA Mortgage are folks who either got denied by other lenders or are stressing during their FHA mortgage process. There are two types of FHA Guidelines On Collections Charge Offs Disputes Judgments:

  1. Lenders Overlays
  2. FHA Guidelines On Collections Charge Offs Disputes Judgments

Not all lenders need to follow FHA Guidelines On Collections Charge Offs Disputes Judgments. Every lender can set higher standards that is above and beyond of FHA Guidelines On Collections Charge Offs Disputes Judgments. These higher standards are called lender overlays.

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

The Gustan Cho Team at USA Mortgage are direct lenders 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 1-800-900-8569 or text us at 262-716-8151 for faster response. We are available 7 days a week, evenings, weekends, and holidays via phone or email at gcho@usa-mortgage.com.

Gustan Cho NMLS ID # 873293

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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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