FHA Loan With Large Collection Accounts

How To Qualify For FHA Loan With Large Collection Accounts:

Home Buyers can qualify for FHA Loan With Large Collection Accounts. FHA does not require FHA mortgage loan borrowers to pay off outstanding collection accounts in order to qualify for FHA Loan. However, FHA does have specific rules and regulations when it comes to qualifying for FHA Loan With Large Collection Accounts. FHA have three different type of collection account categories: Medical Collection Accounts, Non-Medical Collection Accounts, and Charge Off Accounts. Again, FHA does not require FHA Loan applicants to pay off outstanding collection accounts. With medical collection accounts, FHA exempts all medical collection accounts with outstanding balances from calculation of debt to income ratios. Qualifying for FHA Loan With Large Collection Accounts that is medical collection accounts, mortgage lenders can ignore it. Charge off accounts also can be ignored and FHA approved mortgage lenders can ignore charge off accounts, even if the charge off account balance was a large balance.

FHA Loan With Large Collection Accounts: Non-Medical Collection Accounts

FHA Loan With Large Collection Accounts with collection accounts that are non-medical collection accounts are treated differently. FHA does not require the FHA mortgage loan borrower to pay off the non-medical collection account, however, with non-medical collection accounts that total an outstanding collection balance of $2,000 or more, FHA requires that FHA approved mortgage lenders take 5% of the outstanding collection account balance and use that as part of the mortgage loan borrower’s monthly debt to income ratio calculations even though the FHA mortgage loan borrower does not have to make any payments. Many FHA mortgage loan borrowers may have a hard time qualifying for FHA Loan With Large Collection Accounts if the collection account balance is substantially high on non-medical collection accounts. For example, if the mortgage loan borrower had a $10,000 outstanding collection account balance on a non-medical collection account, the mortgage lender needs to use 5% of the $10,000 or $500 per month as part of the mortgage loan borrower’s monthly expenses even though the mortgage loan borrower does not need to make this payment. The reason the Federal Housing Administration requires this is in the event if the collection agency decides legal action against the mortgage loan borrower, the collection account can turn into a judgment where a lien can be placed on the borrower and placed on the property as well as assets of the mortgage loan borrower.

DTI Issues With FHA Loan With Large Collection Accounts

If you have higher debt to income ratios, there may be issues if you need a FHA Loan With Large Collection Accounts that are non-medical collection accounts. With non-medical collection accounts with outstanding balances, FHA mortgage lenders are required to take 5% of the unpaid outstanding collection balance and use it towards calculating the borrower’s debt to income ratios. If the outstanding collection account balances are tens of thousands of dollars, this may disqualify a FHA mortgage loan borrower due to higher debt to income ratios. FHA DTI Requirements allow up to a maximum of 46.9% front end debt to income ratio and 56.9% back end debt to income ratio for FHA mortgage loan borrowers with at least a 620 FICO credit score and for those with under 620 FICO credit score, the maximum debt to income ratios are capped at 43%. There is a solution for borrowers seeking FHA Loan With Large Collection Accounts. If the FHA mortgage loan borrower can have a written payment agreement with the creditor , the written payment agreement that was agreed upon can be used in lieu of the 5% of the unpaid outstanding collection account balance. For example, if the consumer has a written payment agreement with a creditor for $100 on an outstanding collection account balance of $10,000, the $100 per month of the written payment agreement will be used for debt to income calculation instead of the 5% of the $10,000 or $500. Having written payment agreements with creditors on large outstanding collection account balances can be one way of solving high debt to income ratios due to large outstanding non-medical collection account balances.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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