Mortgage Charge Offs And Qualifying For Home Loan With Charge Offs

This BLOG On Mortgage Charge Offs And Qualifying For Home Loan With Charge Offs Was UPDATED And PUBLISHED On May 15th, 2020

Can I Qualify For A FHA With Mortgage Charge Offs?

I get so many inquiries from home buyers who had prior mortgage charge offs who were told that they do not qualify for a FHA Loan:

This is because the lender they went to told them that they do not qualify for a FHA Loan because they have mortgage charge offs
The credit report shows a balance on the charge offs
I hate to say this but like many other professions, not all licensed mortgage loan originators know what they are doing
Many are sometimes so stubborn that they think they know it all but in reality they do not
The mortgage business today is extremely complex
Not everyone can possibly know all the rules and regulations
Every mortgage loan program have different mortgage lending guidelines

In this article, we will discuss and cover Mortgage Charge Offs And Qualifying For Home Loan With Charge Offs.

Mortgage Charge Offs Lending Guidelines

On this article, we will be discussing FHA Loans With Mortgage Charge Offs.

We will show how borrowers can qualify for a FHA insured home purchase loan with 3.5% down payment with prior charge offs that are reported with outstanding balances on credit report
Unfortunately, many borrowers with charge offs were told by loan originators that they need a zero balance letter
Their loan officers told them that they need to do a credit supplement and/or rapid rescore and update their credit report to show that there is a zero balance on the charge offs

This is so untrue and if you are told that you do not qualify for a FHA Loan with Charge Offs by other banks and/or lenders, please call me at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com and our team of licensed loan originators will be on standby to take all of mortgage charge offs questions as well as any other questions you may have. We are available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer all of your questions.

What Are Mortgage Charge Off Accounts

A charge-off of a mortgage account occurs when a creditor has determined after multiple attempts to collect on the debt.

Most mortgage charge off accounts are second mortgages and/or HELOC
Bank feels there is little or no chance or likelihood that the mortgage loan debt will be collected by the borrower
A mortgage charge-off is typically reported after a delinquent mortgage loan account reaches a certain delinquency status

It is identified on the credit report with a manner of payment (MOP) code of “9.”

Lenders Overlays On Charge Offs

As mentioned on the previous paragraph, every mortgage loan program has different waiting period after mortgage charge offs to be eligible to qualify for a mortgage loan. With FHA Loans, the requirements are as follows:

Three year mandatory waiting period to qualify for FHA Loan after the recorded date of foreclosure, deed in lieu of foreclosure, and short sale
Deed in lieu of foreclosure and foreclosures waiting period starts from the date of the sheriff’s sale and/or the date where the deed was transferred out of the homeowners name
The is a three year waiting period to qualify for a FHA Loan after the mortgage charge off date
If the foreclosure happened after the mortgage charge offs, then the three year waiting period start clock will start from the recorded date of the foreclosure and/or deed in lieu of foreclosure
If the charge off happened after the date of the sheriffs sale and/or recorded date of the foreclosure and/or deed in lieu of foreclosure, the the three year start date will start from the mortgage charge offs date reported on the credit report
All mortgage charge offs as well as other charge off accounts have credit outstanding balances on the consumer’s credit report
If a loan officer is telling you that you need a zero balance letter by the creditor and/or need to pay off the charge off account, then my recommendation is to look and find a different loan officer

This because the loan originator does not know what he or she is talking about.

Second Mortgages

There is no waiting period after second mortgage charge offs. However, if a lender charged off the second mortgage and/or HELOC and the homeowner still owns the property, then there will be a lien placed on the property and that charged off second mortgage needs to be addressed and most likely paid. If a homeowner went through a foreclosure, short sale, deed in lieu and no longer owns the property, the second mortgage charge off does not matter and is deemed uncollectible.

To sum it up here is the followings:

No waiting period after second mortgage charge offs to qualify for another mortgage
Charge offs are ignored
If a homeowner still owns the property and has a second mortgage charged off account, there will be a lien on the property
If this applies, the mortgage charge offs needs to be addressed and paid

Home buyers with mortgage charge off, whether they are first mortgage charge off or second mortgage charge off or multiple mortgage charge off accounts, please contact me at 800-900-8569 or text us for a faster response to see if I can get you qualified for a FHA Loan. We are FHA approved direct mortgage bankers with no lender overlays and we fund and service all of our FHA Loans that we originate. We are available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer any mortgage questions you may have.