Importance Of Written Payment Agreements With Creditors

Cases Where Written Payment Agreements With Creditors Are Required:

FHA Loans does not require outstanding collection accounts with outstanding balances to be paid off and/or satisfied for a mortgage loan borrower to qualify for FHA Loans. There are two types of categories of collection accounts with FHA Loans; Medical Collections and Non-Medical Collections. FHA exempts medical collection accounts with outstanding credit balances no matter how much the outstanding medical collection balance is. FHA will not require that a percentage of the outstanding collection balance be used in the calculation of the mortgage loan borrower’s debt to income ratios. FHA also does not count any charge off accounts and all non-mortgage charge off accounts, no matter how much the balance, are exempt from debt to income ratio qualifications. Mortgage charge offs are treated differently. Whether it is a first mortgage or second mortgage, there is a three year mandatory waiting period to Qualify For FHA Loan After Mortgage Charge Off . With Conventional Loans, there is a mandatory 7 year waiting period to qualify for Conventional Loan After Mortgage Charge Off. The mortgage charge off can be a first and/or second mortgage.  Now, with written payment agreements with creditors come into play for mortgage loan borrowers who have large amounts of outstanding collection accounts balances.

Written Payment Agreements With Creditors For Those With Large Outstanding Collection Account Balances

As mentioned in the previous paragraph, the Federal Housing Administration does not require that outstanding collection accounts be paid off in order for the FHA mortgage loan borrower to qualify for a FHA Loan. Medical Collection Accounts are treated differently than non-medical collection accounts. Medical collection accounts and charge off accounts, with outstanding balances, are exempt from any percentage of the outstanding collection account balance in calculation of debt to income ratios. However, with non-medical collection accounts, if the mortgage loan borrower has a total of $2,000 or greater in outstanding collection accounts, then 5% of the outstanding collection account balance will be used in calculating the borrower’s debt to income ratios. This may not be a big issue for some borrowers with smaller outstanding account balances, however, if a borrower has larger outstanding collection balances, the 5% of the outstanding calculations may disqualify the borrower due to exceeding the maximum debt to income ratio caps. However, FHA allows written payment agreements with creditors to be used in lieu of the 5% deduction of outstanding collection accounts. For example, if a FHA mortgage loan borrower has $10,000 in total outstanding collection accounts, then FHA will mandate that 5% of the $10,000 or $500 need to be used in calculation of the borrower’s debt to income ratios. $500 per month monthly payment is huge and it is equivalent to a $100,000 mortgage payment ( principal and interest ). The $500 will be used in calculation of debt to income ratios even though the mortgage loan borrower does not have to pay anything every month. However, if the mortgage loan borrower were to set up a written payment agreements with creditors and have a $200 written payment agreements with creditors, then the $200 will be used in lieu of the $500 in calculation of the debt to income ratios. There is no seasoning requirements on the amount of minimum payments to be made once the written payment agreements with creditors is signed by both the creditors and debtor on collection accounts. This is different with judgments and tax liens.

Written Payment Agreements With Creditors On Judgments And Tax Liens

The Federal Housing Administration will insure FHA mortgage loan borrowers with judgments and tax liens if and only if the borrower has written payment agreements with creditors and has at least three months payment history and can provide proof of three months of canceled checks and/or bank statements showing payment to the creditor and/or the Internal Revenue Service. Written Payment Agreements With Creditors FHA rules are different with judgments and tax liens. With outstanding collection accounts, as long as both parties sign the written payment agreements with creditors, that date is the effective date and the mortgage lender can use the amount on the written payment agreements with creditors even if a single payment has not been made. With Written Payment Agreements With Creditors on judgments and tax liens, the borrower needs to make three months of minimum payments and they cannot make all three future payments all at once and qualify. FHA requires that three consecutive payments have been made and no upfront advance payments will suffice.

Mortgage Lenders With Overlays On Collection Accounts

Just because a mortgage loan borrower meets FHA Guidelines On Collection Accounts does not mean that a particular mortgage lender will do the FHA Loan. Many banks and mortgage lenders, for example, will not take on a mortgage loan borrower with any collection accounts with outstanding collection balances and many other will not accept any mortgage loan borrowers who had any outstanding collection accounts that has been paid for at least for  at least two years. Although FHA Guidelines does not require to satisfy outstanding collection account balances, these banks and mortgage lenders do not accept them due to their mortgage lender overlays . Mortgage lender overlays are the mortgage lender’s own set of rules and requirements on top of federal minimum mortgage lending guidelines. If you have been turned down for a mortgage loan due to a mortgage lender overlays but do meet the federal minimum lending guidelines, please contact us at 262-716-8151. We are an aggressive mortgage lender with no mortgage lender overlays and just go off the federal minimum mortgage lending guidelines.

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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