FHA Loan With Judgment Mortgage Guidelines For 2022

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss qualifying for an 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. FHA loan with judgment mortgage guidelines apply to both home purchase and refinance mortgage loans. In this article, we will discuss and cover FHA Loan With Judgment Mortgage Guidelines And Requirements.

HUD, the parent federal agency of FHA, offers several options for borrowers with outstanding judgments to qualify for FHA loans. In general, HUD and most lenders want borrowers to have their outstanding judgments paid off. You can pay the outstanding judgment at closing and the title company can record the payment when they record the deed of the new ownership.The second option is to settle with the judgment creditor for lower than the face value of the court judgment.

How Can I Get FHA Loan After Paying Judgment Creditor?

Getting the paid receipt and settlement agreement and taking that to close where the title company can have it recorded when they record the deed of the home purchase. The third and most common option is to negotiate and enter into a written payment agreement with the judgment creditor. HUD allows borrowers to mutually settle an outstanding judgment for less than the face amount and be eligible for an FHA loan. The satisfaction of judgment needs to be recorded on county records or at closing through the title company.

FHA Guidelines on Written Payment Agreements on Judgments

Another option borrowers have is to have judgment negotiated with a monthly payment plan and make payments for three consecutive months. You need to have a written payment agreement and not a verbal one. You can have a judgment and still qualify for an FHA loan if you have a written payment agreement with the judgment creditor but three months of payments need to be made and seasoned. You cannot pay the three months of payments upfront once you have entered into a written payment agreement.

Just because a judgment does not report on the credit reports does not mean borrowers are off the hook. Most judgments will get deleted from the consumer credit reports after seven years from the judgment recorded date. However, judgments can be good for ten to twenty years depending on the state. Not only that, judgment creditors can renew judgments for another ten or twenty years once the statute of limitations on judgment expires. How Do judgments get discovered by mortgage lenders? We will discuss this topic in the next paragraph.

Can Mortgage Underwriters See Judgments Not on Credit Reports?

One of the misunderstandings of homebuyers is just because a judgment does not report on their credit reports, they think they are clear and good to go on getting approved for a mortgage. Lenders will thoroughly review the borrower’s credit report. However, mortgage lenders will take a step further and do a third-party national public record search and any judgment not on a credit report will show up through the third-party national public records search. Before the judgment creditors will settle a judgment, they will run a background check on the consumers and research whether the consumer holds any assets.

How Can Judgment Creditors Enforce Court Judgments?

If the judgment creditor discovers the consumer has assets and high income, 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 For For FHA Loans?

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.

How Long Do Court Judgments Stay on Credit Report?

Just for the record, even if the judgment is removed from credit reports, you may still not qualify for an FHA loan due to the statute of limitations. One of the many frequently asked questions we get at Gustan Cho Associates is how long do court judgments stay on a credit report? Judgments are reported for seven years from the recorded date of the judgment. Do not listen to expensive credit repair companies who swear up and down they can remove judgments, tax liens, bankruptcies, and foreclosures on your credit report. Even if they are successful in removing judgments and other public records, mortgage underwriters will find out.

Are Large Judgment Amounts Civil or Criminal?

Unless you have committed fraud, all civil judgments, tax liens, and other public records are of civil matter and not criminal. 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 Can You Qualify For an FHA Loan With Judgment.

Can Court Judgments Disqualify Me For an FHA Loan?

Borrowers Can Qualify For An FHA Loan With Judgment

A common frequently asked question we get at GCA Mortgage Group is can you qualify for FHA Loan with judgment? The answer is a yes and no. The answer is NO if you do not address the court judgment. The answer is YES, you can qualify for an FHA loan with an outstanding judgment if and only if you settle the judgment with the judgment creditor for a lower amount than the face value, or you enter into a written payment agreement with the judgment creditor for a fixed monthly payment. Mortgage Agency Guidelines have certain rules and guidelines when it comes to qualifying for an FHA Loan With Judgment. Yes, homebuyers can qualify for VA, USDA, Conventional, and/or an FHA Loan With Judgment.

Can I Qualify For a Cash-Out Refinance FHA Loan With Judgment?

Many homeowners have a lot of equity in their homes due to skyrocketing home values in recent years. Despite soaring historic high inflation, uncertainty in the stock market, economic uncertainty, and surging high mortgage rates, home values are still increasing. Due to the high demand for homes versus inventory, home prices have been increasing double digits year after year in most parts of the country. With skyrocketing home values, many homeowners tap into their home equity for a cash-out refinance.

When Does Judgment Need To Get Paid for Cash-Out FHA Loan With Judgment?

What happens if you have a judgment? Can you still qualify for a cash-out refinance FHA loan with judgment? If so, do I have to pay the outstanding judgment to qualify for a cash-out FHA loan with judgment? The answer is yes, you can still qualify for a cash-out refinance FHA loan with judgment. The lender will verify you have enough cash-out proceeds to pay the judgment at closing. If you have enough funds to cover the judgment, you can pay the judgment at closing with the proceeds of the cash-out refinance mortgage loan. Once the judgment is paid by the title company, the title agent will record the judgment in public county records.

How Do Underwriters View Judgments When Underwriting FHA Loans

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 for 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 account and/or judgment. Letter of explanation and supporting docs must be consistent with other credit information in the file.

Can Collections and Charged-Off Accounts Turn Into Court Judgments?

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.

Qualifying for an FHA Loan With Judgment Versus Collections

Qualifying for an FHA Loan With Judgment Versus Collections

With unpaid collection accounts with medical collection accounts, the collection account balance is ignored by most lenders with no overlays. With non-medical collection accounts, if the collection account balance is greater than $2,000, then 5% of the unpaid collection balance will be used. The 5% rule is a hypothetical debt and is only used for debt-to-income ratio calculations. This figure will be used as part of the borrower’s monthly debt in calculating the debt-to-income ratios by mortgage underwriters. 

How Can Non-Medical Collections Affect DTI on FHA Loans?

Mortgage underwriters will take 5% of the outstanding collection balance as a hypothetical monthly debt when calculating debt-to-income ratios. The 5% FHA RULE is a hypothetical debt and will be used. This holds true even though no payments need to be made. Borrowers who have large collection account balances and the 5% of the outstanding collection account balance exceeds the maximum debt-to-income ratio caps, there is a solution to lower your DTI with collections. Mortgage 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. Again, medical collections and charged-off accounts are exempt from the 5% rule.

The Best Mortgage Lenders For FHA Loans With Judgments

Borrowers can qualify for an FHA loan With Judgment either by paying off the judgment prior to or 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.

How Can I Qualify For an FHA Loan With Judgment If I Got Denied By A Different Lender?

Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to lender overlays. Gustan Cho Associates has a national reputation for being a one-stop mortgage shop. We are known by many in the industry including realtors that Gustan Cho Associates is able to do loans other lenders can’t. Gustan Cho Associates are able to qualify borrowers for an FHA loan with judgment and bad credit.

The Best Non-QM Loan Mortgage Lenders For Bad Credit with Judgment

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. Again,  75% of our clients are 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. but the great news is the Team at GCA Mortgage gets them qualified, approved, and closed.  The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays at 630-659-7644. Text Michael for a faster response or email him at [email protected]