Qualifying For FHA Loan With Judgment And Tax Liens

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Qualifying For FHA Loan With Judgment And Tax Liens

This BLOG On Qualifying For FHA Loan With Judgment And Tax Liens Was UPDATED On September 28th, 2018

Qualifying For FHA Loan With Judgment And Tax Liens

What Are The Guidelines In Qualifying For FHA Loan With Judgment?

I get many calls and emails by borrowers who want to know the answers in qualifying for FHA Loan With Judgment.

  • Many borrowers go to their local banks or mortgage brokers and are told that qualifying for FHA Loan With Judgment will be a problem
  • They are often told that the judgment needs to be paid off in order to qualify for a FHA Loan
  • Others are told by banks and lenders that there is a two year or longer waiting period in qualifying for FHA Loan With Judgment after the date the judgment has been paid off
  • This is absolutely not the case
  • Borrowers can qualify for a FHA Loan With Judgment
  • This holds true as long as they have a written payment agreement with the judgment creditor
  • Need to make three months of timely payments to the judgment creditor
  • Need to provide three month’s worth of canceled checks which was paid and cashed by the judgment creditor
  • The borrower cannot pay the three months worth of monthly payments all upfront
  • Need three months seasoning
  • For example, say a consumer has a $10,000 judgment and has agreed to a written payment agreement with the judgment creditor
  • They need to make a $100 per month payment until the judgment has been satisfied
  • Under HUD rules and mortgage lending guidelines, the consumer needs to make three month’s of the $100 monthly payment per the written payment agreement with the judgment creditor
  • Cannot pay a $300 check upfront for the three months
  • This will not count
  • The consumer needs to make the timely payments for a minimum of three months
  • Whether they pay more than the minimum monthly payment does not matter
  • But the minimum payment of the $100 per months needs to be paid for the next three consecutive months in order for this borrower to meet the qualifying requirements in qualifying for FHA Loan With Judgment

Qualifying For FHA Loan With Judgment And What Are Judgments?

Qualifying For FHA Loan With Judgment And What Are Judgments?

A judgment is a court order favoring the plaintiff against the defendant.

  • The plaintiff is the party that sues a debtor for a breach of contract or agreement
  • This is normally monetary and the courts decide whether or not the plaintiff has any merits to the accusation and charges
  • If the court deems that the debtor does owe the money or has breached the contract and/or agreement made between creditor and debtor, the court will rule in favor of the plaintiff and award a monetary judgment on behalf of the plaintiff
  • The courts does not have any authority to enforce a judgment
  • The enforcement of judgment needs to be done through separate legal channels by the plaintiff
  • A judgment debtor cannot go to jail or be forced to pay a judgment by a judge
  • Many times when a judgment debtor has no assets, no income, and no access to any income, the judgment debtor is deemed and classified as being judgment proof
  • Judgment proof means that no matter how hard the judgment creditor tries in collecting and enforcing the judgment, they cannot collect
  • This because the judgment debtor is destitute and has no assets nor does he or she have no income.

A judgment is one of the worst derogatory credit items you can have on your credit report.

  • FHA does permit for a FHA borrower to qualify for a FHA Loan with unpaid outstanding collection accounts without having to paid them
  • However, with qualifying for FHA Loan With Judgment is different
  • A judgment needs to be addressed
  • It either needs to be paid off at or prior to closing on a FHA Loan
  • Or a written payment agreement with the judgment creditor needs to be executed and signed and three months worth of payment seasoning is required
  • A judgment will stay on your credit report for seven years from the date the judgment has been entered
  • In most states, a judgment is good for ten years and it depends on the particular state’s statute of limitations where some states may have longer statute of limitations than others
  • Another thing with judgments is that once the statute of limitations period is about to expire in ten years, the judgment creditor can renew the judgment for another ten years after the first ten years is up
  • Although, most judgment creditors will not renew the judgment, the option is there
  • Creditors can renew an outstanding judgment
  • This holds true especially if the judgment creditor thinks that the judgment debtor has hidden assets or will be coming up with assets in the near future

Qualifying For FHA Loan With Judgment And How Do Lenders View Collections And Judgments

Qualifying For FHA Loan With Judgment And How Do Lenders View Collections And Judgments

Outstanding collection accounts do not have to be paid off in order for you to qualify for a FHA Loan.

  • However, collection accounts can turn into judgments if the collection agency and/or creditor pursues legal action
  • So FHA categorizes collection accounts into three categories.
    • Non-medical collection accounts
    • medical collection accounts
    • charge off accounts

Medical collection accounts and charge off accounts are totally exempt from debt to income ratio calculations on its outstanding unpaid collection balance and/or charge off amount.

  • However, with non-medical collection accounts that have a total of $2,000 of outstanding collection account balances, HUD does require lenders to take 5% of the unpaid outstanding collection account balance
  • The 5% is a hypothetical monthly debt in the debt to income ratio calculations of borrower
  • This holds true even though the borrower does not have to pay anything
  • Borrowers can also enter into a written payment agreement with the collection agency and/or creditor
  • They can make a monthly payment agreement
  • That amount can be used in lieu of the 5% of the outstanding collection account balance in the borrower’s debt to income ratio calculations

Qualifying For FHA Loans With Outstanding Liens

Qualifying For FHA Loans With Outstanding Liens

Borrowers can qualify for FHA Home Loans with outstanding tax liens.

  • The same guidelines apply on tax liens as does judgments
  • Borrowers do not have to pay the whole tax lien in full
  • They need to set up a written payment agreement with the IRS and make three timely payments
  • Borrowers cannot pay the three months up front
  • The three months needs to be seasoned for 90 days in order for borrowers to qualify

Solutions In Qualifying For FHA Loan With Judgment

Solutions In Qualifying For FHA Loan With Judgment

With judgments, the judgment either needs to be completely paid off or the borrower needs to enter into a written payment agreement with the judgment creditor:

  • Make sure that they have made at least three payments to the judgment creditor
  • The judgment amount can be settled for less than the full amount as long as they get the judgment release letter
  • The paid off judgment needs to be recorded on public records and the credit report reflects the paid off judgment
  • The judgment can be paid prior to closing or at closing of the mortgage loan at the title company

Borrowers with outstanding  judgments on credit report and need qualifying for VA, Conventional, USDA, or FHA Loan With Judgment, contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or  email us at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to take your phone call or emails and answer any questions you may have.

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