FHA Loan With Judgment Mortgage Guidelines And Requirements

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FHA Loan With Judgment Mortgage Guidelines And Requirements

This BLOG On FHA Loan With Judgment Mortgage Guidelines And Requirements Was Written By Michael Gracz of Gustan Cho Associates

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 a 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
  • 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
  • A judgment is like cancer
  • Until the statute of limitations is over or consumer files bankruptcy, the judgment can come after consumers
  • 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 nothing to collect
  • Consumers cannot go to jail because they have a judgment
  • However, if the judgment creditor gets wind that 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

Can you qualify for FHA Loan with judgment?

  • Mortgage Agency Guidelines has certain rules and guidelines when it comes to qualifying for a FHA Loan With Judgment
  • Yes, home buyers can qualify for FHA Loan With Judgment

How Do Underwriters View Borrowers With Judgments And Collection Accounts

Mortgage underwriters must review 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 borrowers 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 needs to provide letters of explanation with supporting documents for each outstanding collection accounts and/or judgments
  • Letter of explanation and supporting docs must be consistent with other credit information in the file
  • Having unpaid collection accounts does not disqualify borrowers from getting a FHA Loan approval
  • FHA does not require borrowers to pay off the unpaid collection account balances to be eligible for a FHA Loan
  • Borrowers 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 HUD mortgage 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
  • 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

How Can I Qualify For FHA Loan With Judgment

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

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. Over 75% of Michael Gracz’s  borrowers are folks who could not qualify at other lenders due to their overlays or borrowers who gotten 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 faster response or email him at mgracz@gustancho.com.

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