Qualifying For FHA Loan With Medical Collections And Charge Offs

Mortgage loan borrowers can qualify for FHA loan with medical collections and charge offs.  The Federal Housing Administration, a subsidiary of the United States Department of Housing and Urban Development ( HUD )  classifies collection accounts into two categories. Non-medical collection accounts and medical collection accounts.  FHA does not require that collection accounts with balances to be paid off in order to qualify for FHA Loans. However, there two categories of collection classifications are treated differently. Qualifying for FHA Loan With Medical Collections And Charge Offs are lenient with FHA.

How FHA Treats Non-Medical Collection Accounts

Qualifying for FHA Loan With Non-Medical Collection Accounts are different than qualifying for FHA Loan With Medical Collections And Charge Offs. Again, FHA does not require you to pay off your old collection accounts, whether they are non-medical collection account or medical collection accounts. However, if your non-medical collection account balances on your credit report are greater than $2,000, then FHA will require FHA approved mortgage lenders to take 5% of the unpaid collection balance and use that as a monthly debt obligation in the calculation of the mortgage loan borrower’s debt to income ratio calculations even though the borrower does not have to pay that 5%.

How FHA Treats Medical Collections And Charge Offs

FHA treats medical collection accounts totally differently. Any medical collection accounts with balances can be ignored by FHA insured mortgage lenders. It does not matter how much the medical collection account is, medical collection accounts do not count. Unlike non-medical collection accounts with balances, medical collection accounts with outstanding balances are not subject to the 5% calculation of the outstanding collection balance in calculating the borrower’s debt to income ratios. Charge offs do not matter and are considered zero balance debts even though there is an outstanding balance on the borrower’s credit report.

What Are Charge Offs And How Does FHA Treat Charge Offs

When a consumer defaults on their creditor and not pay the agreed upon monthly payments, that account will go into the creditor’s collections department. The collections department of the creditor will try to contact the consumer and try to collect on the debt or try to make payment arrangements. Sometimes creditors will give a reduced payoff and try to settle the debt. However, there are times when consumers cannot pay due to unemployment or other financial crisis or extenuating circumstance. After trying to collect for three to six months, some creditors will write off the debt. Writing off the debt is called charge off. Charged off accounts are reported on the consumer’s credit report as charged off account. FHA exempts charge offs and charge offs does not matter when qualifying for FHA Loans. Even if the consumer wants to pay a charged off credit account, most creditors cannot accept any payment because they zeroed out their books which means that the outstanding collection balance was written off their books. Medical and non-medical charge off accounts does not matter and mortgage loan borrowers can qualify for FHA Loans with charged off accounts on their credit reports.

Qualifying For FHA Loan With Credit Disputes

Credit disputes can be deal killers during the mortgage application and mortgage approval process. Credit Disputes is when consumers want to do credit repair and will dispute a derogatory credit item to the three credit reporting agencies. Most consumers will write a credit dispute letter and send it via certified mail to the three credit reporting agencies: Experian, Equifax, and Transunion. Once the credit bureaus receive the credit dispute letter, they need to contact the creditor where the consumer is disputing and the creditor normally has 30 days, no later than 45 days, to validate the credit dispute and send proof to the credit bureaus. If the creditor does not send the validation to the credit reporting agencies, the credit reporting agencies need to remove the disputed derogatory item off the consumer’s credit report. Unfortunately, credit bureaus do not abide to federal laws and do not remove the derogatory disputed items and just leave the credit dispute on the consumer’s credit report for months.  There are rules and regulations with credit disputes when it comes to the mortgage application and mortgage approval process.

Credit Disputes On Non-Medical Items And Charge Offs

As mentioned earlier, mortgage loan borrowers can qualify for a home loan with collection accounts with outstanding balances and charge offs. However, if you have credit disputes on non-medical collection accounts with a total aggregate of $1,000 or more in outstanding balance on non-medical collection accounts, you cannot have any credit disputes. You need to retract those credit disputes but once you retract the credit disputes, the chances are that your credit scores will drop. This can mean you may not qualify for a mortgage loan if your credit scores are currently border line in meeting the minimum credit score requirements for a mortgage loan.

You can qualify for a FHA Loan with charge offs because FHA allows FHA approved mortgage lenders to ignore charge off accounts. However, you cannot have credit disputes on charge off accounts. Credit disputes on charged off accounts needs to be removed in order for the mortgage loan application and mortgage loan approval process can proceed.

You are allowed to have credit disputes on zero balance non-medical collection accounts and on non-medical collection accounts if your total outstanding collection balance on your credit report is less than $1,000.

Credit Disputes On Medical Collection Accounts

Medical collection accounts are exempt with credit disputes. You can have credit dispute on medical collection accounts with outstanding balances and it will not affect your mortgage loan application and mortgage loan approval process.  You can have credit disputes on medical charge off accounts.

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.

Comments are closed.