FHA Loan With Judgment Mortgage Guidelines

FHA Loan With Judgment Mortgage Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

This blog will discuss qualifying for an FHA loan with judgment mortgage guidelines and requirements. A Judgment is probably the worst derogatory credit item 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 unpaid judgments, the judgment creditor can always come after consumers. FHA loan with judgment mortgage guidelines apply to a home purchase and refinance mortgage loans. This article 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. HUD and most lenders generally 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 judgement.
Does FHA Require Judgments To Be Paid Off

How Can I Get FHA Loan After Paying Judgment Creditor?

They are 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. Get FHA loan after paying judgment creditor

FHA Guidelines on Written Payment Agreements on Judgments

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Another option borrowers have negotiating judgment with a monthly payment plan and making 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 after the judgment recorded to date.

Judgments can be good for ten to twenty years, depending on the state. Also, 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 among 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.

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 they hold 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 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 to collect judgments.

How Bad Are Judgments For FHA Loans?

A judgment is like cancer. Until the statute of limitations is over or the consumer files for bankruptcy, the judgment can come after the consumer. The judgment creditor cannot come after consumers with no assets or income. 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.

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 frequently asked question 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 from the date the judgment was issued before it can be deleted legally by the three credit bureaus.

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 successfully remove 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 matters and not criminal. Consumers cannot go to jail because they have a judgment. However, suppose the judgment creditor gets wind that the consumer came into some wealth, whether by inheritance, winning the lottery, or landing a high-paying job. In that case, they will invest their money in legal fees and can come after them. This article 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 at Gustan Cho Associates is can you qualify for FHA Loan with judgment? The answer is 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 you settle the judgment with the judgment creditor for a lower amount than the face value or 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. Homebuyers can qualify for VA, USDA, Conventional, 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 due to skyrocketing home values in recent years. Home values are still increasing despite soaring historic high inflation, uncertainty in the stock market, economic uncertainty, and surging high mortgage rates. Due to the high demand for homes versus inventory, home prices have doubled yearly in most parts of the country. With skyrocketing home values, many homeowners tap into their home equity for a cash-out refinance. Qualify for a cash-out refinance FHA loan with judgment

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 title company pays the judgment, 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, including derogatory credit information. Collection accounts and judgments will be carefully reviewed and analyzed. Borrowers with derogatory credit items must provide letters of explanation with supporting documents for each outstanding collection account and judgment. The 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. According to HUD mortgage guidelines, mortgage underwriters can ignore medical collection and charge-off accounts.

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 even though no payments need to be made.

For borrowers with large collection account balances and 5% of the outstanding 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 instead 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 before or closing.  Or by having a written payment agreement with the judgment creditor. Alex Carlucci of Gustan Cho Associates said the following about qualifying for an FHA loan with an outstanding judgment on a payment plan:

At least three months of payments must be made to the judgment creditor to qualify for FHA Loan With Judgment. I often get asked by 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 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 can do loans other lenders can’t. Gustan Cho Associates can qualify borrowers for an FHA loan with judgment and bad credit. Qualify for an FHA loan with judgment if other denied 

Frequently Asked Questions (FAQs)

  1. What are the FHA loan guidelines for borrowers with judgment mortgages in 2023?
    The FHA loan guidelines for borrowers with judgment mortgages outline the requirements and considerations for individuals seeking an FHA loan while having a judgment on their credit report.
  2. Is it possible for me to meet the qualifications for an FHA loan if there’s a judgment mortgage listed on my credit report?
    Yes, qualifying for an FHA loan with a judgment mortgage is possible, but certain conditions must be met.
  3. How does having a judgment mortgage affect my eligibility for an FHA loan?
    Having a judgment mortgage on your credit report can influence your credit score and overall creditworthiness, which could affect your ability to qualify for an FHA loan. However, FHA guidelines provide some flexibility for borrowers with judgment mortgages.
  4. Do FHA guidelines require borrowers to satisfy judgment mortgages before qualifying for a loan?
    Depending on the circumstances and the lender’s policies, FHA guidelines may require borrowers to satisfy or resolve judgment mortgages before qualifying for an FHA loan.
  5. Are there specific requirements for handling judgment mortgages under FHA guidelines?
    FHA guidelines may require borrowers to provide documentation and explanations for any outstanding judgment mortgages, particularly if they exceed a certain dollar amount.
  6. Do FHA guidelines impose a maximum amount for judgment mortgages?
    FHA guidelines may impose a maximum threshold for the total amount of judgment mortgages allowed for borrowers to qualify for an FHA loan.
  7. Am I eligible for an FHA loan if I’m currently contesting a judgment mortgage listed on my credit report?
    FHA guidelines provide specific instructions for handling disputed judgment mortgages. Depending on the circumstances, borrowers may need to resolve disputes or provide additional documentation to the lender.
  8. Do FHA guidelines require borrowers to establish payment plans for outstanding judgment mortgages?
    FHA guidelines may require borrowers to establish payment plans or make arrangements to satisfy outstanding judgment mortgages, depending on the lender’s policies and the borrower’s financial situation.
  9. Are there any changes to FHA loan guidelines regarding judgment mortgages for 2023?
    Changes to FHA loan guidelines, including those related to judgment mortgages, may occur periodically. Borrowers should stay updated on the latest FHA guidelines and consult an FHA-approved lender for the most current information.
  10. Where can I find more information about FHA loan guidelines for borrowers with judgment mortgages in 2023?
    Borrowers can refer to the FHA Handbook (or HUD Handbook 4000.1) or consult an FHA-approved lender for detailed information about FHA guidelines and eligibility requirements regarding judgment mortgages.

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

Every non-QM and alternative financing mortgage program is available in today’s market. Some 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.

80% of our clients are borrowers at Gustan Cho Associates 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.

The great news is the Team at Gustan Cho Associates gets them qualified, approved, and closed.  The team at Gustan Cho Associates is available seven days a week, on evenings, weekends, and holidays at 800-900-8569. Text us for a faster response, or email him at alex@gustancho.com

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18 Comments

  1. I have a judgement and I am trying to get a mortgage can I qualify for a mortgage and down payment assistance

    1. You cannot get any mortgage loans with an outstanding judgment. You need to contact the judgment creditor and set up a written payment agreement. Make three timely monthly payments and then you will qualify.

  2. I have a 20 year old judgement and the atty who handled the court judgment is in prison and i do not know who to contact to pay.

    1. I would contact the courthouse and see if you can request a judge to vacate it due to the statute of limitation.

  3. I have a judgment for medical bills from 2009 I’m being told that even if I paid the judgment off the lender will not be able to finance the loan because FHA has strict guidelines and the credit score now needs to be 640? Eventho I was already approved.

    1. I do not know who is telling you this but that is not true. You can pay the outstanding judgment and/or settle it with the judgment creditor and qualify for a mortgage. The release of the judgment needs to be recorded at the courthouse which the title company can do or the judgment credit can do. Please reach out to us at gcho@gustancho.com with your contact information and we can help you. What state are you in?

  4. Does this apply to every state? I’m in Michigan trying to purchase my first home with a judgement from a rental.

    Thanks

    1. Yes. HUD, VA, USDA, FANNIE MAE, FREDDIE MAC are federal guidelines. We can help you. Please call us at 262-716-8151 or text us for a faster response.

  5. If a judgement was filed against me while I was in the process of filing bankruptcy, and the bankruptcy included the original creator for this judgement and was discharged. Will this affect my ability to get a home loan? The judgement still shows as open even though the loan was discharged through bankruptcy. I already have a preapproval fo a home loan and the mortgage company is asking for a letter but the law office who filed the judgement advised they don’t have to provide a letter.

    1. The judgment should not affect you from getting a mortgage but your bankruptcy attorney needs to correct it on public records.

  6. My husband an I are in the process of trying to buy a house we were preappoved and when it came to paying off our debt for fha loan we found out that he owed more then what the credit score told us. Now we have to send our mortgage lender information only husbands wage garnishment which has been taking out of his pay since 2018. Will we be denied for the home now since we can’t pay off what we though was much lower then what it really is?Can they deny us because he has a wage garnishment?

  7. I have a judgement against me for a repo’d car. Next year makes 10 years since judgement was issued. I would have paid it off but the amount of interest is now more than quadruple what the judgement originally started at making it impossible. If they do not renew the judgment next year, will I have options to qualify to buy a house then without that hanging over the purchase?

  8. Hi !
    My mom is in the process of buying a house. A report came up on a bond her and I sign for when my brother got incarcerated. His bond was 150k the case is still active. Would this hold us back from being official approved for a mortgage with fha ? We’re in the process of removing my mom from the bond.

  9. Hi im being garnished at the moment and have been since August of 2021. Will I still qualify for fha loan

  10. Can I still get an FHA loan if I have a garnishment that is done in like 3 payments and I have explained to my mortgage broker how it came to be and it was for a good reason. But now they are saying I might have to pay it off at closing and we are supposed to close on the 19th and I am just finding this out. Should I be worried?

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