Tips On How To Get Mortgage With Collection Accounts
This BLOG On How To Get Mortgage With Collection Accounts Was Written By Gustan Cho
Many home buyers who consult with mortgage lenders often ask the question on How To Get Mortgage With Collection Accounts and they often contact me because they get different answers by loan officers. I tell my borrowers that you do not have to pay off any outstanding collection accounts or charge off accounts to qualify for a FHA Loan. Then why is it that these other loan officers at other mortgage companies tell borrowers who consult with them the following when asked How To Get Mortgage With Collection Accounts:
- You cannot qualify for a FHA Loan unless you pay off all of your collection accounts
- The maximum amount of collection account you can have is $2,000
- The maximum amount of charge off account you can have is $3,000
- You cannot have any judgments or tax liens and need to have them paid off before you qualify for a FHA Loan
All of the above statements is not correct and if any loan officer tells you that you need to pay off outstanding collection accounts or charge off accounts in order to qualify for a FHA Loan, they are not telling you the correct answer. I am not insinuating that these loan officers are lying to you, but if they tell you that you need to pay off outstanding collection accounts or charge off accounts in order to qualify for a FHA Loan, that is not correct.
2017 FHA Guidelines On Collection Accounts
There are two separate types of mortgage lending requirements when it comes to FHA Loans. HUD stands for the United States Department of Housing and Urban Development which is the parent of the Federal Housing Administration which is FHA. FHA is not a mortgage lender and has nothing to do with the origination and funding of FHA Loans. The function and role of FHA is to act as a government agency where is insures FHA Loans that has been originated and funded by banks and mortgage companies who are FHA Approved and where these lenders will follow FHA Guidelines when qualifying borrowers. Here are some general 2017 FHA Lending Guidelines:
- Minimum credit score of 580 FICO credit scores for borrowers who want to purchase a home with 3.5% down payment
- Debt to income ratios are capped at 43% DTI for borrowers with under 620 FICO Credit Scores and borrowers with over 620 FICO Credit Scores can have front end debt to income ratio caps as high as 46.9% DTI and back end debt to income ratio caps as high as 56.9% DTI
- Outstanding Collection Accounts do not have to be paid off
- Outstanding Charge Off Accounts do not have to be paid off to qualify for a FHA Loan
- Medical Collection Accounts with outstanding balances are treated differently than non-medical collection accounts where it is exempt from debt to income ratio calculations
- On Non-Medical Collection Accounts with outstanding unpaid balances that is greater than $2,000, 5% of the outstanding unpaid balances will be used as a monthly debt in the calculation of the borrowers debt to income ratio even though the borrower does not have to pay anything. In the event if the outstanding unpaid collection balance is of a high balance and the 5% of the the outstanding unpaid balance will disqualify the borrower due to exceeding the maximum debt to income ratio cap, the borrower can make a written payment agreement with the creditor and/or collection agency and the figure agreed upon can be used in lieu of the 5% of the outstanding unpaid collection balance amount. There is no seasoning of minimum months paid and the date the written payment plan is executed is sufficient and that agreed payment will be used. FHA nor the lender will not enforce whether the payment to the creditor and/or collection agency is being made or is being defaulted after the closing of the FHA Loan
What Happens If Your Lender Tells You That You Do Not Qualify For FHA Loan Because Of Collections?
As mentioned earlier, FHA does not require that you pay off outstanding collection accounts or charge off accounts to qualify for a FHA Loan. Most mortgage lenders, especially banks, will have maximum collection account balance caps where they will not approve you unless you pay off outstanding collection accounts or charge off accounts. If you have a loan officer that tells you that you do not qualify for a FHA Loan unless you pay off the outstanding collection account balance, then go to another lender that has no FHA Lender Overlays On Collection Accounts . Same with charge off accounts. If you are told by a loan officer that tells you that you do not qualify for a FHA Loan with them because you have outstanding charge off accounts, then go to another FHA Lender that has no FHA Lender Overlays On Charge Off Accounts . If you are looking for a FHA Lender with no overlays on collection accounts or charge off accounts, contact Gustan Cho at The Gustan Cho Team at 262-716-8151 or email us at email@example.com.