FHA Loan With Judgment Mortgage Guidelines And Requirements

This Article Is About FHA Loan With Judgment Mortgage Guidelines And Requirements

A Judgment is probably the worst derogatory credit item you can have on your credit report. A judgment is worse than a bankruptcy. This is because, with bankruptcy, consumers are wiping the slate clean. Creditors can no longer come after consumers. However, with unsettled judgments, the judgment creditor can always come after consumers. In this article, we will discuss and cover FHA Loan With Judgment Mortgage Guidelines And Requirements.

Judgment Enforcement By Judgment Creditors

If consumers hold any assets, the judgment creditor can enforce the judgment and take the following actions:

  • garnish wages
  • freeze bank accounts
  • lien your property and/or assets

However, not every judgment creditor will enforce an outstanding judgment. It costs money and takes time to enforce a judgment. Creditors need to make sure the debtor has assets in order to collect on judgments.

How Bad Are Judgments

A judgment is like cancer. Until the statute of limitations is over or the consumer files bankruptcy, the judgment can come after consumers. For consumers with no assets or income, the judgment creditor cannot come after them. This is because they are judgment proof. Being judgment proof means that if a judgment debtor has nothing of value and no income, the judgment creditor cannot come after someone with anything to collect. Consumers cannot go to jail because they have a judgment. However, if the judgment creditor gets wind that the consumer came into some wealth whether by inheritance or winning the lottery or landed a high-paying job, then they will invest their money in legal fees and can come after them. In this article, we will answer the question of Can You Qualify For an FHA Loan With Judgment.

Borrowers Can Qualify For FHA Loans With Judgments

FHA Loan With Judgment

Can you qualify for FHA Loan with judgment? Mortgage Agency Guidelines has certain rules and guidelines when it comes to qualifying for an FHA Loan With Judgment. Yes, homebuyers can qualify for FHA Loan With Judgment.

How Do Underwriters View Borrowers With Judgments And Collection Accounts

Mortgage underwriters must review the borrower’s past credit history which includes derogatory credit information. Collection accounts and judgments will be carefully reviewed and analyzed. Mortgage underwriters will check to see if the collection accounts and judgments were caused by borrowers’ disregard of credit and financial responsibilities. Underwriters will carefully analyze the borrower’s inability to manage his or her debts. Was bad credit and judgments due to extenuating circumstances caused by loss of employment, divorce, or medical issues? Borrowers with derogatory credit items need to provide letters of explanation with supporting documents for each outstanding collection accounts and/or judgment. Letter of explanation and supporting docs must be consistent with other credit information in the file.

FHA Loan With Judgment Mortgage Guidelines: HUD Collection Accounts Guidelines

How Can I Qualify For FHA Loan With Judgment

HUD does not require borrowers to have outstanding collections and charged-off accounts to be paid to qualify for FHA Loans. Having unpaid collection accounts does not disqualify borrowers from getting an FHA Loan approval. FHA does not require borrowers to pay off the unpaid collection account balances to be eligible for an FHA Loan. Borrowers do not have to pay off old collection accounts to qualify for an FHA Loan. Medical collection accounts and charge-off accounts can be ignored by mortgage underwriters according to HUD mortgage guidelines. With unpaid collection accounts with non-medical collection accounts, if the aggregate unpaid. the collection account balance is greater than $2,000, then 5% of the unpaid collection balance will be used. This figure will be used as part of the borrower’s monthly debt in calculating the debt-to-income ratios. This is a hypothetical debt and will be used even though no payments need to be made. Borrowers can make a written payment agreement with a collection agency. The monthly payment agreement agreed upon can be used to calculate the monthly debt to income ratio in lieu of the 5% of the unpaid collection account balance.

FHA Loan With Judgment Mortgage Guidelines And How Can I Qualify

Borrowers can qualify for FHA Loan With Judgment either by paying off the judgment prior to or at closing. Or by having a written payment agreement with the judgment creditor.

At least three months of payments need to be made to the judgment creditor in order to qualify for FHA Loan With Judgment. I get asked many times from home buyers with judgments if they can pay the three months of payments to the judgment creditor ahead of the payment due date and in one lump sum. The answer is NO. Three months of seasoning is required. The judgment debtor needs to make three monthly payments and provide three months of canceled checks to the mortgage underwriter.

About The Author Of FHA Loan With Judgment Mortgage Guidelines

About The Author Of FHA Loan With Judgment

Michael Gracz is the author of this blog on FHA Loan With Judgment and is a contributing writer for Gustan Cho Associates. Mike Gracz is also the deputy chief managing editor for Gustan Cho Associates Mortgage News and the National Sales Manager for Gustan Cho Associates Mortgage Group. Mike has been with Gustan Cho Associates for many years and is an expert in originating and funding government and conforming loans with no overlays. Gustan Cho Associates has a national reputation for being a one-stop mortgage shop. We have every non-QM and alternative financing mortgage program that is available in today’s market. Some of our popular loan programs include bank statement mortgages, non-QM mortgages one day out of bankruptcy and bankruptcy, asset-depletion, fix and flip loans, and our no-doc stated income P and L mortgage loans with no income tax return required. Over 75% of Michael Gracz’s borrowers are folks who could not qualify at other lenders due to their overlays or borrowers who get a last-minute mortgage denial due to not being properly qualified. Michael Gracz is available 7 days a week, evenings, weekends, and holidays at 630-659-7644. Text Michael for a faster response or email him at [email protected] 

This ARTICLE was updated on March 11th, 2021

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