Home Loan With Collections, Charges Offs, Disputes


Home Loan With Bad Credit

Bad credit mortgage loans
Gustan Cho Associates

Home buyers can qualify for a mortgage loan with bad credit.  By home loan with bad credit, a mortgage loan borrower can qualify for a home loan with prior bad credit such as collection accounts, or charge off accounts, but needs to have been timely on their payments for the past 12 months.  Mortgage lenders do understand that a mortgage loan applicant can have had extenuating circumstances in the past such as a job loss, business loss, medical issues, divorce, or other extenuating circumstances that could have caused an economic impact in their lives and hurt their credit scores and have derogatory items on their credit reports.

Charge Off Accounts

If you have a collection account and the creditor or collection agency has written your debts off, they charged off your debts.  These charged off debts are reported as charge off accounts on your credit report.  HUD guidelines on charge off accounts is that they are excluded and does not count even though a balance is showing on your credit report.  Medical collection accounts and charge off accounts do not count negatively when applying for a FHA loan.  There are mortgage lenders that view medical collections and charge offs as a negative and may have overlays that you need to pay them off, however, if that is the case, go to a different mortgage lender where they just go off HUD mortgage lending guidelines.

Medical Collections

Medical collection accounts with balances does not matter when applying for a residential FHA insured mortgage loan.  FHA categorizes medical and non-medical collections into separate categories and treats them differently.  Again, medical collection accounts even with unpaid credit balances is normally ignored by FHA insured mortgage lenders.

Non-Medical Collections

Non-medical collection accounts are collection accounts that is non-medical such as auto loans, credit cards, installment loans, utility accounts, cell phone accounts, and other collection accounts.  You can have unpaid collection accounts and still qualify for a FHA insured mortgage loan, however, if your total balance is $2,000 or greater on your collection accounts  

then 5% of the unpaid collection account balance will be used towards your debt to income ratio calculations.

If the 5% calculations of the unpaid collection account balance will overthrow the debt to income ratio cap for the mortgage loan applicant, then the mortgage loan applicant can have a written payment agreement with the collection agency and whatever the minimum payment agreement that is agreed upon will be used to calculate the debt to income ratios.

Credit Repair And Credit Disputes

Credit disputes is a major problem and will halt the mortgage application and mortgage approval process.  Most folks who go through a credit repair program dispute the derogatory items on their credit reports in hopes of the creditor not responding and having the derogatories deleted from their credit report.  Unfortunately, you cannot have credit disputes on non-medical derogatory items which has an aggregate unpaid balance of $2,000 or greater or credit disputes on charge off accounts.  You would need to have the disputes retracted in order for the mortgage approval process to proceed.  Medical collection account credit disputes are exempt from credit disputes.

Related> Borrower credit analysis: HUD

Related> FHA guidelines on collection accounts

Related> Collection accounts

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