Can I Qualify For FHA Loan With Judgment?

A Judgment is probably the worst derogatory credit item you can have on your credit report.  A judgment is worse than a bankruptcy because with a bankruptcy, you are wiping the slate clean and creditors who you used to owe money to can no longer come after you.  However, with an unsettled judgment, the judgment creditor can always come after you and if you hold any assets, the judgment creditor can enforce the judgment and garnish your wages, freeze your bank accounts, or lien your property and/or assets.  A judgment is like cancer where until the statute of limitations is over or until you file bankruptcy, the judgment can come after you.  If you have no assets or income, then the judgment creditor cannot come after you because you 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 nothing to collect.  You cannot go to jail because you have a judgment.  However, if the judgment creditor gets wind that you 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 you.  Can you qualify for FHA Loan with judgment?  FHA has certain rules and guidelines when it comes to qualifying for a FHA Loan With Judgment.  Yes, you can qualify for FHA Loan With Judgment.

How Do Underwriters View Borrowers With Judgments And Collection Accounts

Mortgage underwriters must review mortgage loan borrower’s past credit history which includes derogatory credit information.  Collection accounts and judgments will be carefully reviewed and analyzed to see if the collection accounts and judgments were caused by the mortgage loan borrowers disregard of credit and financial responsibilities, the borrowers inability to manage his or her debts, or due to extenuating circumstances caused by loss of employment, divorce, or medical issues.  Mortgage loan borrowers with derogatory credit items needs to provide letters of explanation with supporting documents for each outstanding collection accounts and/or judgments and must be consistent with other credit information in the file.  Having unpaid collection accounts does not disqualify a FHA mortgage loan borrower from getting a FHA Loan approval.  FHA does not require that you pay off the unpaid collection account balances to be eligible for a FHA Loan.  You do not have to pay off old collection accounts to qualify for a FHA Loan.  Medical collection accounts and charge off accounts can be ignored by mortgage underwriters according to FHA mortgage lending guidelines.  With unpaid collection accounts with non-medical collection accounts, if the aggregate unpaid collection account balance is greater than $2,000, then 5% of the unpaid collection balance will be used as part of the borrower’s monthly debt in calculating the debt to income ratios even though no payments need to be made.  A FHA mortgage loan borrower can make a written payment agreement with a collection agency and 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.

How Can I Qualify For FHA Loan With Judgment

Mortgage loan borrowers can qualify for FHA Loan With Judgment either by paying off the judgment 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 and the judgment debtor needs to make three monthly payments and provide three months of canceled checks to the mortgage loan underwriter.

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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