Advice In Getting Mortgage With Charge Off

Getting Mortgage With Charge Off Accounts

Mortgage borrowers can qualify for FHA Loans with outstanding collection accounts without having to pay them off if they go to a mortgage lender with no lender overlays on collection accounts. Getting mortgage with charge off accounts is allowed without having to get the charge off paid off. Unfortunately, there are many mortgage lenders who will not accept any mortgage loan borrowers who have outstanding collection accounts unless they are completely paid off, including charge off accounts. Many mortgage loan borrowers get confused when they read the HUD 4000.1 Handbook, which is the new FHA Lending Guidelines where the HUD FHA Guidelines On Collection Accounts state that outstanding collection accounts do not have to be paid off and banks and mortgage lenders require them paid off with a zero balance and paid off letter. Banks and mortgage lenders do not have to just go off the mortgage lending guidelines of HUD when approving FHA Loans. Most mortgage lenders have something called mortgage lender overlays which are additional mortgage lending guidelines that surpass the minimum HUD FHA mortgage lending guidelines.

For example, FHA guidelines state that a FHA mortgage lender can approve a FHA mortgage loan borrower with outstanding collection accounts without having the borrower pay off the outstanding collection account balances. However, banks and mortgage lenders who are FHA approved mortgage lenders do not have to just follow the minimum FHA guidelines in not requiring the borrower not to pay the outstanding collection accounts with outstanding balances. FHA mortgage lenders can require that all of the outstanding collection accounts be paid off in order for them to approve the FHA insured mortgage loan with their financial institution. Most mortgage lenders will require that outstanding collection accounts as well as charge off accounts to be paid off due to their own lender overlays because they do not want the outstanding collection accounts and/or charge off accounts to become judgments .

Getting Mortgage With Charge Off: How FHA Classifies Collection Accounts

FHA has different classifications on collection accounts and charge off accounts. Collection accounts with outstanding balances do not have to paid off in order to qualify for a FHA Loan. However, FHA does classifies collection accounts into two different categories: Medical Collection Accounts and Non-Medical Collection Accounts.  Medical Collection Accounts are exempt from debt to income ratio calculations so no matter how large the outstanding balance the medical collection account is, no portion of the medical collection outstanding balance will be used in debt to income calculations. With non-medical collections, 5% of the outstanding collection balance can be used to calculate as a monthly debt even though the mortgage borrower does not have to make any payments to the creditor in calculating the borrower’s debt to income ratios. This 5% rule only applies if the total aggregate collection account balances of the borrower exceeds more than $2,000. If the borrower’s aggregate outstanding collection account balance is less than $2,000, the 5% of the outstanding balance is not deducted and calculated as a monthly expense in calculating the borrower’s debt to income ratios.  If the 5% of the outstanding collection accounts is too much and will disqualify the borrower due to high debt to income ratios, the borrower is allowed to make a written payment agreement with the creditor and/or collection agency and whatever the written monthly repayment agreement is, that can be used in lieu of the 5% of the outstanding collection account balance. There is no seasoning of payment made requirements and just the written repayment agreement is required.

Getting Mortgage With Charge Off: Types Of Charge Offs

Home Buyers that had prior charge off accounts can qualify for a FHA Loan with charge off accounts even though there is a balance that reports on their credit report. Most charge offs have credit balances reporting on their consumer credit reports. The balance reporting on the credit report is the amount that the creditor has charged off. There are no percentage of the amount of charge off balances that is used as monthly debt like there is for non-medical collection accounts with balances. Charge off accounts reporting on credit reports are not affected in getting mortgage with charge off.

There are rules in getting mortgage with charge off where the charge off account is a prior mortgage. Mortgage charge offs do have a mandatory waiting period of three years from the date of the foreclosure and/or the date of the mortgage charge off, whichever is later. For example, if you have a sheriff’s sale and/or foreclosure that was recorded on January 1, 2013 and that foreclosure had a mortgage charge off on January 1, 2014 with a charge off balance, then the three year waiting period will be January 1. 2017, or three years later from the date of the mortgage charge off. Many mortgage lenders will tell you that you need to pay off the mortgage charge off balance in order for you to qualify for a FHA Loan. That is not the case and the mortgage charge off balance does not matter in qualifying for a FHA Loan with an outstanding balance on the charge off account of your prior mortgage loan.

Getting Mortgage With Charge Off: No Lender Overlays

If you are interested in getting mortgage with charge off accounts, whether it is mortgage related or regular charge off accounts with outstanding balances, please contact me at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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.

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