FHA Loans With Credit Issues And Outstanding Collections

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FHA Loans With Credit Issues And Outstanding Collections

This BLOG On FHA Loans With Credit Issues And Outstanding Collections Was UPDATED On August 24th 

FHA Loans is hands down the most popular mortgage loan program in the United States.

  • FHA Loans is not just for home buyers with bad credit
  • FHA Mortgages is also beneficial for borrowers with stellar credit
  • Some borrowers may not qualify for conventional loans due to the following:
    • not meeting mandatory waiting period requirements after bankruptcy and/or housing event
    • having a higher debt to income ratio
    • having large outstanding collections and charged off accounts
  • Just because borrowers have excellent credit scores and high income does not mean they can qualify for a FHA Loan
  • Someone one year out of bankruptcy and/or foreclosure can have credit scores over 700
  • I get many calls and inquiries everyday from borrowers who were told different things from lenders they applied to
  • I specialize in FHA Loans with credit issues
  • Many of my viewers of my blogs call or inquire every day on case scenarios

The top topic my readers have on FHA Loans With Credit Issues is about FHA Guidelines on the following:

Questions And Answers On FHA Loans With Credit Issues

1. Is is okay to have credit disputes under $1,000 for conventional loans? 

  • Conventional loans –
    • if disputed message appears on AUS, regardless of the amount, the dispute message must be removed
    • A new credit report obtained and/or the disputed account must be paid/closed
    • Disputed accounts up to $1,000 is exempt from retracting credit disputes on FHA Loans

2. Do lenders have any overlays for qualifying for mortgage after loan modification.

  • Mortgage lending guidelines require timely payment after a mortgage loan modification of at least 12 months
  • Borrowers can qualify for a mortgage one year after a mortgage loan modification
  • Borrowers with a prior mortgage loan modification on their primary residence and want to purchase a second home, needs to meet conventional lending guidelines
  • This because buyers cannot purchase a second home with a FHA Loan
  • FHA Loans is for owner occupant primary residences only
  • Not second home financing nor investment home financing
  • We do not have overlays
  • Must follow Investor guidelines, i.e. satisfactory payment history for the past 12 months
  • 12 months payment history needs to be verified with 12 months canceled checks, or 12 months bank statements, and a verification of mortgage

 3. Charge off posted on credit report in past 12 months.  Is it okay to assume that this is okay for mortgage lenders with no mortgage lender overlays?

  • Past-Due, Collection, and Charge-Off of Non-Mortgage Accounts Accounts that are reported as past due (not reported as collection accounts) must be brought current
  • For example, borrowers with three months late on their automobile payment and are not current, need to have that auto payment current in order for you to qualify for a FHA Loan
  • Any other credit accounts that has been delinquent needs to be current
  • Borrowers who are applying for a one-unit, principal residence properties are not required to pay off outstanding collections or non-mortgage charge-offs—regardless of the amount

Outstanding Collections To Qualify For Mortgage

Note: If the lender marks the collection account Paid By Close in the online loan
application, DU will issue a message in the DU Underwriting Findings report stating
that the collection must be paid.

  • Borrowers applying for a two- to four-unit owner-occupied and second home properties, collections and non-mortgage charge-offs totaling more than $5,000 must be paid in full prior to or at closing
  • Borrowers who are applying for investment properties, individual collection and non-mortgage charge-off accounts equal to or greater than $250 and accounts that total more than $1,000 must be paid in full prior to or at closing .

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