Home Loan With Collection Accounts And Charge Offs Guidelines

Home Loan With Collection Accounts And Charge Offs Guidelines

This BLOG On Home Loan With Collection Accounts And Charge Offs Guidelines Was UPDATED On January 4th, 2019

Qualifying Requirements For Home Loan With Collection Accounts. HUD, the parent of FHA does not require that outstanding collections and charged off account be paid off.

  • Many borrowers who contact me do so because they were told by their previous lender that they are denied for a FHA Loan or are going through stress during their mortgage process
  • Under FHA Guidelines a borrower can qualify for FHA Home Loan With Collection Accounts without having to pay it off

Lender Overlays On Home Loan With Collections And Charge Offs

Most lenders have overlays on collections and charged off accounts where they require their borrowers to pay off outstanding collections and charged off accounts even though FHA does not require it. Lender Overlays are additional guidelines imposed by each individual mortgage lender that is above and beyond those of FHA Guidelines.

  • Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no overlays on government and conventional loans
  • FHA does not require outstanding collections accounts to be paid off as a condition of mortgage loan approval
  • A letter of explanation  is required but the loan officer can help borrowers with that
  • Supporting documentation is not required for collection accounts
  • Borrowers can qualify for home loan with collection accounts
  • However, many lenders have internal overlays when it comes to having open collection accounts
  • Many lenders will require borrowers to pay off all open collection accounts prior to closing or at closing as the condition of them getting a clear to close
  • Other lenders will probably require a detailed letter of explanation on each open collection accounts

What Is Manual Underwriting?

When the automated underwriting system cannot render an approve/eligible and yields a refer/eligible, that means that the automated system wants the lender to downgrade the file to a manual underwrite.

  • A human underwriter needs to review the file manually and meet manual underwriting guidelines
  • Collection accounts with outstanding balances is taken into consideration when the mortgage underwriter reviews the borrowers mortgage loan application
  • The borrower must provide a letter of explanation and supporting documentation consistent with the explanation, for all collection accounts

Do Not Pay Off Open Collection Accounts

Do not take matters in your own hands without talking to your mortgage loan originator and pay off an old collection account or enter into a payment plan.

  • I am not recommending not to pay a creditor that is owed money
  • But paying off an old open collection account can lower credit scores by more than 80 plus points overnight
  • Do not pay off an old open collection account under any circumstances unless the mortgage loan originator instructs borrowers
  • One way one can pay off an old collection account with an outstanding balance is to negotiate with the collection agency or creditor with a pay for delete
  • Or negotiate a one lump sum payment in return for them removing the derogatory item from all three credit reporting agencies
  • This is the only way is should be negotiated and not take anything less
  • In the event if the collection agency or creditor is willing to delete the negative derogatory credit item from the three credit reporting agencies, then go ahead and pay the negotiated settlement amount and make sure the correction is reported on the three credit reporting agencies

Qualifying For Home Loan With Collections

Home Buyers who have outstanding collections and charged off accounts who needs a direct lender with no overlays on government and conventional loans, please contact The Gustan Cho Team at Loan Cabin Inc. at 262-716-8151 or text us for faster response. We are available 7 days a week, evenings, weekends, and holidays. Or email us at gcho@loancabin.com.

Gustan Cho NMLS ID # 873293

Related> Can I Qualify For Home Loan With Old Collection Accounts?

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