Mortgage With Collection Accounts And Charge Offs

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Mortgage With Collection Accounts And Charge Offs

This BLOG On Mortgage With Collection Accounts And Charge Offs Was UPDATED On November 4th, 2018

Many home buyers who consult with lenders often ask the question on How To Get Mortgage With Collection Accounts.

Incompetent And Misleading Loan Officers

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:

  • Borrowers 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
  • Cannot have any judgments or tax liens
  • Need to have them paid off before you qualify for FHA Loans

All of the above statements is not correct. If any loan officer tells to pay off outstanding collection accounts or charge off accounts in order to qualify for a FHA Loan, they are not telling correct answer.

  • I am not insinuating that these loan officers are lying
  • 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

Updated HUD 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
  • HUD is the parent of the Federal Housing Administration which is FHA
  • FHA is not a lender
  • 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
  • FHA  insures FHA Loans that has been originated and funded by banks and mortgage companies who are HUD  Approved
  • Lenders will follow FHA Guidelines when qualifying borrowers

Basic HUD Mortgage Guidelines

Here are some general HUD 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 Credit Scores
  • Borrowers with over 620 FICO 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
  • Medical Collection Accounts with outstanding balances are treated differently than non-medical collection accounts
  • 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
  • This holds true 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 due to exceeding the DTI cap, borrower can make a written payment agreement with the creditor and/or collection agency
  • 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

What Happens If Lenders Says No To Mortgage With Collection Accounts

As mentioned earlier, HUD does not require borrowers pay off outstanding collection accounts or charge off accounts to qualify. Most lenders, especially banks, will have maximum collection account balance caps. They will not approve borrowers unless they pay off outstanding collection accounts or charge off accounts. If a loan officer says borrowers do not qualify for a FHA Loan unless they 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 borrowers are told by a loan officer they do not qualify for a FHA Loan with them because of outstanding charge off accounts, then go to another Lender that has no FHA Lender Overlays On Charge Off Accounts . Borrowers looking for a Lender with no overlays on collection accounts or charge off accounts, contact Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

This BLOG On Mortgage With Collection Accounts Was UPDATED On November 4th, 2018

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