1. Updated FHA Mortgage Guidelines On Collection Accounts And Charge Offs
* FHA Mortgage Guidelines On Collection Accounts
The Federal Housing Administration (FHA) allows mortgage loan applicants with open unsatisfied collection accounts to get mortgage loan approvals without having to pay the balances of the unpaid collection accounts. Borrowers do not have to pay outstanding collections and charged off accounts to qualify for FHA Loans. However, many lenders require collections and charged off accounts to be paid in full even though FHA does not require it. This is because many lenders have mortgage overlays. The Gustan Cho Team at Loan Cabin Inc. has no mortgage overlays on FHA, VA, USDA, and Conventional Loans.
2. Charged Off Accounts
* FHA does not require that outstanding charged off accounts be paid in order to qualify for FHA Loans.
- The 5% rule on outstanding collections balance does not apply with charged off accounts
- Charged Off accounts is always has a dollar amount balance on credit reports
- That balance is the amount charged off
- Borrowers cannot have credit disputes on charged off accounts
- There are times where charged off accounts are reported as Profit And Loss on credit reports
- Charged Off Accounts and Profit And Loss are the same on credit report verbiage
3. Do Not Pay Off Old Collection Accounts Without Negotiating
* Borrowers deciding to pay off an old outstanding collection account, do not pay them a cent until they can get a pay for delete agreement with the collection agency.
- If deciding to settle on a collection account on pennies on the dollar, make sure that part of agreement is to have the collection agency delete derogatory collection item as part of the payoff
- Do not pay off any collections without addressing credit reporting issues
- Remember that paying an old collection account can reactivate credit derogatory item which will drop credit scores
- Credit scores can drop as much as 100 points when it is re-activated
Home Buyers who need to qualify for mortgage with a direct lender with no mortgage overlays can contact us at The Gustan Cho Team at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We have no overlays on FHA, VA, USDA, and Conventional Loans. We are available 7 days a week, evenings, weekends, and holidays.
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