FHA Loan With Judgment Mortgage Guidelines

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FHA Loan with Judgment: Your Guide to Homeownership in 2025

If you’re dealing with a judgment on your credit report, you might think qualifying for an FHA loan is out of reach. Here’s the good news: it’s not impossible. FHA loans, supported by the Federal Housing Administration (FHA), aim to assist individuals facing financial difficulties in realizing their dream of homeownership.

If you have a judgment against you, rest assured that options are still available to explore.

This guide will cover everything you need to know about getting an FHA loan with judgment in 2025, including updated guidelines, actionable steps, and how Gustan Cho Associates can help.

Can You Get an FHA Loan with Judgment in 2025?

You can still get an FHA loan with judgment, as long as you meet certain requirements. The rules for FHA loans are flexible, giving borrowers different ways to handle judgments so they can still buy a home. Some options include:

• Paying off the judgment.
• Settling the judgment for less than the full amount.
• If you owe money and have a judgment against you, one way to handle it is to make a payment plan with the creditor in writing. This means you can agree on how much to pay and when helping you manage your debt. If you’re looking for an FHA loan with judgment, having a clear payment plan can improve your chances of approval.

By addressing the judgment, you demonstrate financial responsibility, which lenders view positively. The steps you take to resolve a judgment will determine your eligibility for an FHA loan.

What Is a Judgment, and Why Does It Matter?

A judgment is a court order that requires you to pay a debt to a creditor. It’s considered one of the most severe derogatory marks on a credit report because it signifies unresolved debt that can lead to wage garnishments, bank account freezes, or property liens.

Here’s why judgments matter in the mortgage process:

• Public Records Search: Even if a judgment isn’t listed on your credit report, lenders will find it through a national public records search.
• Risk to Lenders: Judgments create uncertainty for lenders because they compete with other debts for repayment.
• Impact on Approval: Unless addressed, a judgment can disqualify you from getting a mortgage.

FHA loans differ from regular loans because they have special options for people with past legal issues, like judgments. If you’re looking for a way to get a home loan and have a judgment against you, an FHA loan with judgment could be a good choice. These loans provide a path for borrowers who find it hard to get approved elsewhere.

FHA Guidelines for Judgments in 2025

The Department of Housing and Urban Development (HUD) oversees FHA loans and provides clear guidelines for borrowers with judgments. Here are the options:

1. Paying Off the Judgment

If you have a judgment against you, you can pay it off completely before or during the closing process. If you decide to pay it at closing, the title company will take care of the payment and make sure it’s properly recorded. This is important, especially if you’re looking for an FHA loan with judgment, as it can help you move forward with your home purchase.

2. Settling for Less

Borrowers can negotiate with the judgment creditor to settle for an amount lower than the original judgment. Once settled, the satisfaction of judgment must be recorded in public records or handled by the title company at closing.

3. Entering a Written Payment Agreement

This is the most common option. Borrowers can enter into a written payment agreement with the judgment creditor. FHA guidelines require:

• A written agreement, not a verbal one.
• Proof of at least three consecutive monthly payments before applying for the FHA loan. Lump-sum payments covering three months upfront are not allowed.

How Do Judgments Affect FHA Loan Approval?

Mortgage lenders take judgments seriously. Even if a judgment has been removed from your credit report, it can still impact your loan approval. Here’s how lenders evaluate judgments:

Discovering Judgments

Lenders conduct third-party national public records searches, which reveal judgments not listed on credit reports. This ensures they have a complete picture of your financial obligations.

Underwriting Process

During underwriting, lenders review:

• The type and amount of the judgment.
• How you plan to resolve it (e.g., payment, settlement, or agreement).
• Your overall credit history and ability to repay the mortgage.

Debt-to-Income Ratio (DTI)

Judgments can affect your DTI if they require ongoing payments. Lenders typically look for a DTI below 57% for FHA loans, though compensating factors can allow for higher ratios.

Step-by-Step Guide to Getting an FHA Loan with Judgment

Here’s how to navigate the process of qualifying for an FHA loan with judgment:

1. Review Your Credit Report and Public Records

Start by checking your credit report and public records for any judgments. This helps you prepare for the lender’s review.

2. Determine Your Resolution Strategy

Choose one of the following options:

• Pay off the judgment.
• Negotiate a settlement.
• Enter a written payment agreement.

3. Gather Documentation

You’ll need:

• Proof of payment, settlement, or a written payment agreement.
• Bank statements or canceled checks showing three consecutive monthly payments.
• A letter of explanation for the judgment detailing the circumstances and resolution steps.

4. Work with a Knowledgeable Lender

Choose a lender experienced with FHA loan with judgment, like Gustan Cho Associates, to guide you through the process and advocate for your approval.

5. Submit Your Application

Provide all required documents to your lender. Be prepared for questions from the underwriter about the judgment and your plan to resolve it.

FHA Loan Options for Borrowers with Judgments

Home Purchase Loans

FHA loans for home purchases allow borrowers with judgments to achieve homeownership by addressing their financial obligations beforehand.

Cash-Out Refinance Loans

If you own a home and have some equity in it, you can use an FHA loan with judgment to cash out and pay off any outstanding judgments. If you decide to refinance your home loan, the lender will settle any outstanding judgments at the time of closing with funds from your new loan. It’s a way to clear up your debts while getting a better loan for your home.

How Gustan Cho Associates Can Help

At Gustan Cho Associates, we focus on helping people who are rejected by other banks. What makes us different is that we understand your situation. If you’ve been turned down because of past issues, like an FHA loan with judgment, we’re here to find a way to help you. Here’s what sets us apart:

• No Lender Overlays: Many lenders impose stricter requirements than FHA guidelines, but we follow the official FHA rules.
• Experienced Team: Our mortgage experts have extensive experience working with borrowers with judgments and other credit challenges.
• We provide flexible options for people looking for loans. If you don’t fit the usual FHA requirements, like in cases of an FHA loan with judgment, we can help you find creative solutions, including non-QM loans. Our goal is to make it easier for you to get the financing you need.

Let us help you turn your homeownership dreams into reality, even when dealing with a judgment. Call us today at 800-900-8569 or visit our website to get started.

Why Addressing a Judgment Is Worth It

While dealing with a judgment can be stressful, addressing it opens the door to homeownership. Taking the necessary steps to resolve the judgment improves your chances of FHA loan approval and strengthens your overall financial health.

Gustan Cho Associates is here to support you every step of the way. With our extensive knowledge, adaptable options, and a borrower-centric focus, you can realize your dream of homeownership—even if you have a judgment on your record.

Ready to take the next step? Contact us today and let us help you get approved for an FHA loan with judgment.

Frequently Asked Questions About FHA Loan with Judgment:

Q: Can I Qualify for an FHA Loan with Judgment on My Credit Report?

A: Absolutely, you can still be eligible for an FHA loan with judgment as long as you take appropriate steps to resolve the situation. Some possible solutions include paying it off in full, negotiating a settlement, or establishing a formal written payment plan.

Q: Do I Need to Pay Off a Judgment Before Getting an FHA Loan?

A: Not always. FHA guidelines allow you to pay it off, settle for less, or enter a payment plan with the creditor. However, you must show at least three months of payments on a written agreement.

Q: What Happens if My Judgment isn’t on My Credit Report?

A: Even if a judgment isn’t on your credit report, lenders will find it during a public records search. You’ll still need to resolve it to qualify for an FHA loan.

Q: Can I Negotiate a Settlement for Less Than the Full Judgment Amount?

A: Yes, FHA guidelines allow borrowers to negotiate a settlement for less than the original amount. Make sure the settlement is recorded in public records or handled at closing.

Q: Can I Include the Judgment Payment in My Closing Costs?

A: Yes, if you’re doing a cash-out refinance or have extra funds at closing, the title company can use those proceeds to pay off the judgment.

Q: What Proof do I Need to Show I’m Addressing the Judgment?

A: You’ll need a written payment agreement, proof of at least three consecutive payments (e.g., canceled checks or bank statements), or documentation of a full settlement.

Q: How do Judgments Affect my Debt-to-Income Ratio (DTI)?

A: The monthly payment will count toward your DTI if you have a payment plan. FHA loans typically allow DTI ratios up to 57%, though compensating factors may allow higher.

Q: What if the Judgment is Over 10 Years Old?

A: Judgments can remain enforceable for 10 to 20 years, depending on your state. Even older judgments may need to be resolved before getting an FHA loan.

Q: Can I Get an FHA Loan with Judgment Through Gustan Cho Associates?

A: Certainly! Gustan Cho Associates focuses on supporting borrowers facing financial difficulties, including judgments. We adhere strictly to FHA guidelines and do not impose any unnecessary overlays.

Q: Why Should I Resolve My Judgment Before Applying for an FHA Loan?

A: Resolving your judgment improves your chances of approval, demonstrates financial responsibility, and helps you confidently move toward homeownership.

This blog about the “FHA Loan With Judgment Mortgage Guidelines” was updated on January 24th, 2025.