Qualifying For FHA Loan During And After Chapter 13 Bankruptcy
This BLOG On Qualifying For FHA Loan During And After Chapter 13 Bankruptcy Was Written By Gustan Cho NMLS 873293
Borrowers can qualify for Qualifying For FHA Loan During And After Chapter 13 Bankruptcy.
- Many of our viewers contact me daily and are told different answers by lenders with regards to the qualification requirements of Qualifying For FHA Loan During And After Chapter 13 Bankruptcy
- There are two sets of mortgage lending guidelines
- The first and most important mortgage requirements in qualifying for FHA Loans is the FHA Guidelines set by HUD under HUD 4000.1 FHA Handbook
- HUD Guidelines states the minimum FHA Mortgage Guidelines that all lenders need to follow in order for their FHA Loans to be insured by HUD
- The second type of mortgage requirements is called overlays
- Overlays means that each individual mortgage lender can have lending guidelines that are above and beyond of FHA Guidelines
- This is called lender overlays
What Are Overlays On FHA Loans?
Overlays are lending requirements that a lender implements and are not required by FHA. Here are examples of lender overlays compared to FHA Guidelines:
- FHA requires that borrowers need a 580 credit score to qualify for a 3.5% down payment FHA home purchase
- Most lenders will not accept any borrowers who do not have at least a 620 credit score
- Some may not accept any borrowers with credit scores of under 640 FICO credit scores
- Why are lenders requiring a higher credit score when FHA only requires a credit score of 580 FICO?
- The reason lenders require higher credit scores than those required by FHA is because they have overlays on credit scores
- This means they do not feel comfortable just going with the minimum required by FHA.
- There are many overlays lenders can have
- Another example of overlays is debt to income ratios
- FHA allows up to a back end debt to income ratio of 56.9% DTI
- However, most lenders will cap the debt to income ratio to 50% DTI
- The above is called overlays on debt to income ratios
Overlays Qualifying For FHA Loan During And After Chapter 13 Bankruptcy
The United States of Housing and Urban Development or HUD is the parent of FHA, which is the Federal Housing Administration.
- FHA is one of the most popular loan programs in the United States where its mission is to promote home ownership to hard working Americans
- HUD has very relaxing credit and income requirements where it makes it possible for any American the opportunity to become a homeowner
Borrowers can qualify for FHA Loans with the following:
- Bad credit
- Credit scores down to 580 FICO
- Debt to income ratio as high as 56.9%
- 3.5% down payment on a home purchase
- Borrowers do not have to pay outstanding collections or charge off accounts to qualify for FHA Loans
- Down payment can be gifted
- No closing costs because FHA allows up to 6% sellers concessions by home sellers for buyers to be able to use it for closing costs
- Borrowers with prior Chapter 7 Bankruptcy can qualify for FHA Loan two years from discharged date of Chapter 7 Bankruptcy
- Borrowers with prior Foreclosure, deed in lieu of foreclosure, and short sale can qualify for FHA Loan after meeting a three year waiting period
- Borrowers with a Chapter 13 Bankruptcy can qualify for a FHA Loan one year into the Chapter 13 Bankruptcy Repayment Plan
- Borrowers with a Chapter 13 Bankruptcy discharge can qualify for a FHA Loan with no waiting period after the Chapter 13 Bankruptcy discharged date.
A substantial percentage of my borrowers are folks who were told that they do not qualify Qualifying For FHA Loan During And After Chapter 13 Bankruptcy discharge and had to wait one or two years after the discharged date of their Chapter 13 Bankruptcy. For example, Chase Bank will not do any Chapter 13 Bankruptcy mortgages until the discharged date of the Chapter 13 has been seasoned for at least one year. Other banks and lenders want borrowers to wait two years after the Chapter 13 Bankruptcy discharged date. This is not HUD’s requirement but a lender overlay Chase Bank or other lender has. Gustan Cho Associates Mortgage Group has no overlays on borrowers qualifying for Qualifying For FHA Loan During And After Chapter 13 Bankruptcy. Borrowers can qualify for FHA Loans after a Chapter 13 Bankruptcy discharged date with no waiting period.
Qualifying For FHA Loan During Chapter 13 Bankruptcy Repayment Period
Borrowers can qualify for a FHA Loan one year into a Chapter 13 Bankruptcy Repayment Period.
Here are the requirements for borrowers who need to qualify for a FHA Loan during their Chapter 13 Bankruptcy Payment Period:
- 12 months of timely payments needs to be made to their creditors under the Chapter 13 Bankruptcy Payment Plan
- The approval of the borrower’s Chapter 13 Bankruptcy Trustee is required which should be no problem
- Qualifying For FHA Loan During And After Chapter 13 Bankruptcy and if the discharged date has not been seasoned for two year, the file needs to be manually underwritten
- All manual underwriting requires verification of rent
- Verification of rent requires 12 months of canceled rent checks and rent payments needs to be timely
- If rental payments has been made online, then 12 months of online bank statements showing the rental payments been transferred from renter’s bank account into landlord’s bank account needs to be provided
- If borrower has been renting from a registered property management company, then a VOR, Verification Of Rent, FORM provided by lender needs to be signed and dated by the property management company manager and/or representative.
- The Gustan Cho Team at Loan Cabin Inc. NMLS 1657322 has no overlays on Qualifying For FHA Loan During And After Chapter 13 Bankruptcy and other loan programs.
If you have been told that you do not qualify for a Qualifying For FHA Loan During And After Chapter 13 Bankruptcy due to their lender overlays, please contact Gustan Cho NMLS 873293 of Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. The Gustan Cho Team at Loan Cabin Inc. NMLS 1657322 is a five star full service mortgage company licensed in multiple states with no overlays on government and conventional loans. We close most of our loans in 21 days or less.
Can I Qualify For FHA Loan With Collection And Charge Off Accounts?
Qualifying For FHA Loan With Collection And Charge Off Accounts Without Paying Them
FHA Loans is the most popular loan program in the United States due to its leniency.
- FHA is part of the United States Department of Housing and Urban Development and its mission and role is to promote home ownership
- FHA is not a lender and has nothing to do with originating loans nor does it fund any residential home loans
- FHA is a governmental agency under the umbrella of HUD
- FHA acts as a federal mortgage insurance entity
- It insures banks and private lenders who originate and fund FHA Loans
- In order for the Federal Housing Administration to insure lenders on a FHA Loan that the borrower is defaulting on, the lending institution needs to make sure that the borrower meets FHA Guidelines with regards to credit and income
- If any of the FHA Guidelines are not met, the defaulted FHA Loan is not insurable by FHA and the lender is stuck with the loss
- FHA does not require outstanding collections and charge offs to be satisfied for borrowers to qualify for a FHA Loan
- Borrowers do not have to worry about paying older collection accounts or charge off accounts from the past in order to qualify for a FHA Loan
Why Do Lenders Require To Pay Unsatisfied Collections And Charge Offs?
Many of our viewers are told by lenders that they do not qualify for FHA Loans due to outstanding collections and charge off accounts.
- You can qualify for FHA Loan With Collection And Charge Off Accounts under HUD Guidelines
- However, the particular lender may require you to pay off all outstanding collection account balances as well as charge off accounts
- This often confuses borrowers
- This is because lenders are telling them one thing opposite of what HUD Guidelines on collections and charge offs are
- The reason for this is due to the fact that lenders are allowed to have overlays which are additional higher sets of mortgage guidelines that are above and beyond of those of HUD
This may be hard to understand so let me use example to simplify what overlays are:
- Most lenders have lender overlays on countless of items that contradict FHA Guidelines
- There are two types of FHA Loan Requirements:
- FHA Guidelines and Mortgage Lender Overlays
- All lenders need to meet the minimum FHA Mortgage Requirements
- However, lenders can set higher lending standards than the minimum standards of FHA
- This is what you call a lender overlay and it is perfectly legal for a lender to do so
- Borrowers can qualify for FHA Loan With Collection And Charge Off Accounts without having to pay them off and FHA will insure the mortgage to the lender
- Lenders may choose to have borrowers pay off the outstanding collections and charge offs as part of their overlays
- This is called a lender having overlays on collections and charge offs
- Borrowers can qualify for a FHA Loan After Chapter 13 Bankruptcy Discharge with no waiting period under HUD Guidelines
- However, many lenders like Chase Bank will require a one year or longer waiting period after a Chapter 13 Bankruptcy Discharge
- This holds true even though FHA does not require any waiting period
- This is an overlay that Chase Bank has on waiting period after Chapter 13 Bankruptcy discharge date
- Many banks including Chase Bank does not allow collection accounts and charge off accounts
- This holds true even though FHA states that you do not have to satisfy outstanding collections and charge offs
FHA Guidelines On Collection Accounts
FHA Classifies Collection accounts into two categories:
- Non-Medical Collections
- Medical Collections
HUD allows up to $2,000 of unpaid outstanding non-medical collection accounts with outstanding balances before it starts affecting debt to income ratios.
- If you have more than $2,000 in outstanding non-medical collection account balances, HUD requires lenders to take 5% of the outstanding collection balance
- 5% of outstanding collections is used as hypothetical debt
- This is counted as if it were part of the borrower’s monthly debt payments
- The borrower does not need to pay anything but the 5% figure is used in the calculation of the borrower’s debt to income ratios when qualifying the borrower
- If the outstanding collection account balance is substantially of a larger amount, the borrower can enter into a written payment agreement with the creditor
- The amount agreed upon can be used as the monthly debt payment in lieu of the 5% figure
- There is no payment seasoning requirement
- The amount agreed upon is effective the day that both the borrower and creditor enter into a written payment agreement
Medical collection accounts is exempt from including a percentage of the medical collection balance in calculating debt to income ratios.
FHA Guidelines On Charge Off Accounts
HUD does not require charge off accounts to be paid to qualify for FHA Loans no matter how much the charge off account balance is.
- There is no impact on charge off accounts and debt to income ratios
- No percentage of the charge off needs to be taken as a monthly debt like non-medical collection accounts
- However, you cannot have any credit disputes on non-medical collection accounts where the aggregate balance is greater than $1,000 or any charge off accounts
- When you look at a consumer credit report with a charge off account, you will see the amount of the charge off account balance
- Disregard that balance because all charge off accounts have balances reporting on the consumer credit report
Finding A Lender To Qualify FHA Loan With Collection And Charge Off Accounts
If you have outstanding collection and charge off accounts and are told that you do not qualify for a FHA Loan with collection and charge off accounts, please contact us at Gustan Cho Associates. The Gustan Cho Team at Loan Cabin Inc. is a national five star mortgage banking firm licensed in multiple states with no overlays on FHA Loans, VA Loans, and Conventional Loans. Unfortunately, when you go to a bank or other lender, they often do not tell you that you may not qualify with them due to their lender overlays on collections and charge offs but you may qualify with a lender who has no overlays. We are available 7 days a week, evenings, weekends, and holidays to take your mortgage inquiries. You can call us at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.
Benefits And Disadvantages Of Paying Off Mortgage Early
This BLOG On Paying Off Mortgage Early Was UPDATED On December 13th, 2018
Pay Off Mortgage Early? Advantages & Disadvantages
“Free and Clear” ownership is the end game for many homeowners, and for good reason.
- However, paying off mortgage early isn’t the best of use of one’s money in a lot of instances.
- This blog will explore the advantages and disadvantages of paying off mortgage early
- Hopefully the information contained herein will better equip a homeowner with the requisite knowledge to make the decision whether to retire a mortgage early or not
Advantages of Paying Off Mortgage Early
When it comes to prioritizing your debt, mortgages are not always at the top of the list.
- For many, that may seem counter intuitive because mortgages are a huge debt to carry
Let me summarize the pros and cons of getting rid of a mortgage.
- The biggest and most obvious advantage is interest savings
- The advantage of paying off mortgage (or any type of debt) early is that borrowers pay less interest
- For example, if a mortgage borrower owe $200,000 on a 30-year, fixed-rate mortgage at 5%, the monthly payment will be about $1,073
- If homeowners keep the mortgage for 30 years, They will end up paying a total of $186,000 in additional interest
- This is almost double the actual cost of the property when paid over 30 years
Case Scenario On Paying Off Mortgage Early
Take for instance the following example to understand interest savings.
- If a borrower was to receive a $20,000 windfall and apply it all to their mortgage principal in their 4th year, that borrower will pay off the loan in 25 years instead of 30
- Homeowners cut the total interest from $186,000 to $144,445.79—saving about $44,554.21 over the life of the loan
- So instead of going on a European vacation and spending your $20,000 windfall, borrowers actually double their windfall in interest savings over the life of your loan by applying it in full and directly to the mortgage
Russ Weiss, a CFP with Marshall Financial Group, offers both pros and cons.
- The pros include:
- Peace of mind:
- “A lot of what I do is managing behavior vs. managing investments,” he said
- “If paying off a mortgage means the client is less likely to panic with their portfolio value down, I am inclined to recommend it”
- It is hard to put a price tag on peace of mind
Discipline In Saving
Good savings vehicle. “Some clients are not good savers,” Weiss said. “By paying off the mortgage, it creates a form of forced savings.”
- Paying down a mortgage is different from just moving money into a savings account, where by the click of a button people can use savings money
- A savings account requires a good amount of discipline to just leave alone:
- Whereas as in a mortgage there are more steps to take to access the money via a HELOC or cash out refinance
Taking more risk in the overall portfolio. “By paying off the mortgage, it allows us to revisit the investment portfolio structure and allocate more money to stocks.”
Disadvantages of Paying Off Mortgage Early
But the disadvantages of paying off a mortgage early come when homeowners money could have been better spent.
- Mortgages are relatively cheap debt
- They also come with tax benefits that can make them cost even less
- Currently the going rate for a 30-year, fixed-rate mortgage is around the mid to upper 3 range
- This is what people mean when they say “money is cheap”
- Once homeowners send extra money to pay down a mortgage it’s tied up in your property
- If someone unexpectedly loses their job or suddenly have a large expense, they won’t be able to get that money back easily, as I have touched on earlier in this blog
- If a homeowners property value goes down that homeowner might not be able to access their funds absent a sale of their home
Weiss also lists several reasons for not retiring a mortgage early, including:
- Leverage:
- “By borrowing for long periods of time at low rates and investing the difference, the client will most likely end up with more wealth versus paying off the mortgage”
- Right-sizing debt:
- “People typically buy too much house and therefore take out too much of a mortgage,” he said
- “If paying off the mortgage is a concern, they should consider the possibility they purchased too much house
- The right amount of debt is favorable to long-term wealth growth, assuming a low-interest-rate environment”
- Inflation hedge:
- “Paying off the mortgage does not help to provide income,” Weiss said
- “Plus, the bank takes all the risk
- Over a 30-year history, assuming the borrower makes all the monthly payments, the bank can never call the loan
- This provides for a fixed payment for 30 years that will never change
- Taking inflation into account, it’s possible that 20 years into the mortgage, the payment will be equivalent to an electric bill or similar”
- I would advise a client to really contemplate what is important to him in deciding whether or not to pay off their mortgage
- For example, If a client is a disciplined saver and investor, their extra money might be better served in a low risk mutual fund than paying off their mortgage
- If someone has difficulty saving money for instance, because they are constantly dipping into their savings account, then paying off a mortgage would probably be a good savings vehicle for them
Again, peace of mind is priceless. If paying off a mortgage is going to provide a great deal of peace of mind and comfort, then it might be ideal. I would always advise a client to speak to a Certified Financial Planner for any decisions as “earth shattering” as retiring their largest debt.
About The Author Massimo Ressa
Massimo Ressa is the Chief Executive Officer of Gustan Cho Associates at Loan Cabin Inc. NMLS 1657322. Massimo Ressa of Gustan Cho Associates Mortgage Group is a licensed mortgage loan originator licensed in multiple states. Massimo Ressa of The Gustan Cho Team at Loan Cabin Inc. leads a team consisting of licensed and support personnel known nationally of not having any lender overlays on government and conventional loans.
Gustan Cho Associates at Loan Cabin Inc. are experts in the following:
- No Lender Overlays On FHA, VA, USDA Loans
- No Lender Overlays On Conventional Loans
- Non-QM Loans
- Bank Statement Loans For Self Employed Borrowers
- Investment Property Loans
Our viewers with any questions can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. We are available 7 days a week, evenings, weekends, and holidays. The Gustan Cho Team at Loan Cabin Inc. NMLS 1657322 is headquartered in Lombard, Illinois.
Obstacles In Buying Condo With FHA Loans Versus Conventional Loans
This BLOG On Obstacles In Buying Condo With FHA Loans Versus Conventional Loans Was UPDATED On December 8th, 2018
Condominiums is considered riskier investments than single family homes. Borrowers who can only get approved for FHA Loans cannot necessarily any condo of their choice. The Condominium Complex needs to be FHA APPROVED/ Why Should a Condo Get FHA Approved?
What should buyers and sellers know about FHA condo approval requirements?
- Plenty! First and foremost a real estate professional should know that having FHA condo approval can be critical
- The bar is set high
- Both buyers and sellers should educate themselves on the FHA process – for sellers to be more marketable to prospective buyers, and for buyers to take advantage of these low-down payment loans
- For those who are not familiar with the term FHA loan, it stands for the Federal Housing Administration
- Essentially it is a government backed loan that allows those borrowers who have not saved a substantial amount of money but otherwise have good credit and stable employment to get financing
- Both sellers and buyers need to be aware of just how important having FHA approvals can be!
FHA Condo Requirements
The FHA condo approval requirements are 95 pages long, vary with the type and size of the condo, and are not easy to summarize.
- Much of it has to do with what constitutes acceptable documentation and procedures
- In general, the requirements are designed to protect residents against financial hazards arising from their responsibility for the condominium’s affairs
- Rules that protect the residents also protect the lenders who make condo loans, which in turn protect FHA as the insurer of those loans
Buying Condo With FHA Loans And Its Requirements
Here are a few of the more obvious ones:
- On a new condo, the developer must have sold at least 50% of the units in the project to permanent owner occupants
- This minimizes the risk that the condo is not economically viable
- No more than 15% of the units in the condo can be delinquent more than 60 days on their condo association fees
- This minimizes the risk that those residents who actually pay dues will have to cover the deficiencies of those residents in arrears
Condo Complex Liability
The condominium must be covered by hazard, flood, liability and other insurance required by state or local condominium laws or acceptable to FHA.
- This minimizes the risk that a natural or other disaster will jeopardize the solvency of the condo
- Note that Fannie Mae and Freddie Mac have condo requirements that are similar to those of FHA, though less extensive
- If a mortgage loan that will be sold to one of those agencies is secured by a condo unit, the condo project must be approved by the agency purchasing the loan
FHA Condo Approval for Sellers
A condo owner/investor interested in re-selling their condo or even a realtor engaged in listing condominiums for sale as part of their normal business may wonder why FHA approval for condo complexes is important to them.
- The answer pertains to return on investment (ROI) for owners and ease and expedience of sale on the part of realtors
- Having FHA mortgage approval increases the odds that selling a condo will happen quickly and at top value by increasing your buyer pool (more buyers eligible for purchase)
FHA Condo Approval for Buyers
There are many reasons for a buyer to choose an FHA approved condo, not the least of which is the possibility of a small down payment loan. FHA approval requires adherence to some quality control requirements that few associations can meet.
- National Mortgage News claims that approximately 60 percent of associations are denied approval from the FHA, a serious vetting process that cuts no corners in its demands on condo associations
- The FHA only wants to loan money on properties that are considered a sound investment and these requirements are deemed necessary to guarantee such investments reasonably
- By purchasing a condo that is eligible for an FHA loan, a borrower has allowed the government to essentially guarantee investment
- Not only have you managed to get a good loan towards your purchase, but you have also ensured that a good majority of people living in your condo association will be owners as opposed to investors
- Owners often have a greater % of being current on maintenance/condo fees than investors
- Owners have more “skin in the game” for obvious reasons
Things To Know About Buying Condo With FHA Loans
Perhaps even more important, you will guarantee that your condo association has reserves of cash that are at least equal to a year’s worth of fees from the association.
- This means that when something goes wrong that affects the whole complex, such as roofing issues or flooding problems, your association will have the money to address those problems, instead of issuing a surprising and costly “assessment” on the owners
- As a bonus, your association is virtually guaranteed to be free of legal problems as of the time of your purchase
- When you have invested with numerous other individuals in a property, this can make a big difference
Questions To Ask When Buying Condo With FHA Loans
A borrower should ask some important questions before purchasing a condominium about FHA approval.
- Finding out the answers to these issues can save a lot of anxiety for the buyer in the future
- A condominium is a uniquely different purchase from other properties with their own nuances and real estate professionals should treat them as such in order to add value to their clients
About The Author
The Author Of This Blog, Obstacles In Buying Condo With FHA Loans Versus Conventional Loans, is Alex Carlucci. Alexander Thomas Carlucci is a licensed mortgage loan originator and guest writer for Gustan Cho Associates. Alex Carlucci, who holds a Juris Doctorate Law Degree and Masters Of Laws Degree, owns two condos himself and is an expert in real estate investments, financing, and lending. Alex is a guest writer for Gustan Cho Associates Mortgage Group and its affiliates sites and is licensed to originate mortgage loans in multiple states. Alex’s expertise is government and conventional loans with no lender overlays and is a correspondent lender on non-qm loans, bank statement loans for self employed borrowers, condotel financing, non-warrantable condominium loans, and commercial loans. Stay tuned for more of Alex Carlucci’s blogs.
FHA Guidelines On Charge Offs And Collection Accounts
This BLOG On FHA Guidelines On Charge Offs And Collection Accounts Was UPDATED On December 7th, 2018
Before we start looking at the rules, it’s very important to point out that the information listed here are FHA minimum standards.
- A given lender or financial institution may have more strict requirements depending on circumstances, state laws, or other factors
- Remember that FHA loan rules don’t override state law and lenders are free to require higher standards as long as they are in compliance with federal laws
When it comes to collections on a borrower’s credit report, FHA loan rules in HUD 4000.1 FHA Handbook instruct the lender.
Types Of Mortgage Guidelines
There are two sets of mortgage lending guidelines:
- The first set of guidelines is directly from FHA, the Federal Housing Administration
- The second set of guidelines is an optional mortgage guidelines required by lenders which are called lender overlays
- There are many types of lender overlays
- Overlays are additional mortgage guidelines that is instituted by each individual mortgage lender that is above and beyond those of HUD Guidelines
FHA does not require borrowers to pay outstanding collections and/or charged off accounts to qualify for FHA Loans. FHA Guidelines on Charge Offs and Collections are individual mortgage lender overlays.
What Are Lender Overlays?
FHA Mortgage lender overlays are mortgage lending guidelines that a particular mortgage lender will impose in addition to those set by the Federal Housing Administration, FHA.
- For example, FHA may allow a mortgage loan applicant with unpaid collection accounts to qualify for a FHA insured mortgage loan without having to pay it off under FHA Guidelines on Charge Offs and Collections
- However, a particular mortgage lender may require all collection accounts to be paid off even though FHA does not require it
- This is called mortgage lender overlays
- Same with credit scores
- HUD requires a minimum credit score of 580 FICO from any mortgage loan applicant for them to qualify for a 3.5% down payment home purchase FHA insured mortgage loan
FHA Guidelines On Credit Scores
Many, if not most, set their own standards with regards to minimum credit scores.
- Most banks and mortgage companies do have mortgage lender overlays on minimum credit scores
- Most require 620 FICO credit scores and a large percentage of mortgage lenders such as banks
- Most credit unions, require 640 FICO credit scores or higher
- HUD only requires a 580 FICO credit score to qualify for 3.5% down payment FHA Home Loan
- Out team, at The Dale Elenteny Team at Gustan Cho Associates have a national reputation of representing a national five star mortgage companies with zero overlays on government and conventional loans
There are lenders, such as myself, that do not have any overlays. We will just go off the automated findings of the Automated Underwriting System. We have no other higher FHA Guidelines than the minimum FHA mortgage lending guidelines.
FHA Guidelines On Charge Offs And Collection Accounts
As long as borrowers meet the minimum FHA guidelines, The Gustan Cho Team at Loan Cabin Inc. has no overlays on FHA, VA, USDA, Fannie/Freddie mortgage loan programs.
FHA Guidelines on Unpaid Collection Accounts
FHA Guidelines does not require for you to pay off existing unpaid collection accounts.
However, FHA Guidelines does classify collection accounts into three separate categories
- Non-Medical Collection Accounts
- Medical Collection Accounts
- Charge Off Accounts
Types Of Collection Accounts
FHA has different categories on the types of collection accounts and FHA Guidelines On Charge Offs And Collection Accounts with these different types of derogatory accounts.
- Non-Medical Collection Accounts
- Any non-medical collection account with a total aggregate unpaid balance of $2,000 is ignored by FHA Guidelines
- Unless the particular lender may have their own lender overlays on paying unpaid non-medical collection accounts
- If the unpaid non-medical collection accounts are greater than $2,000, then HUD requires lenders to take 5% of the unpaid collection balance and calculate it on the calculations of the debt to income ratios
- The 5% does not have to be paid but it is just used for DTI Calculation purposes
- If the 5% calculations are too much and will not qualify the mortgage loan applicant, then the mortgage loan applicant can make a written payment agreement with the collection agency
- The amount agreed upon as the monthly payment will be used to calculate the debt to income ratios
- Medical Collection Accounts
- Medical Collections are treated differently than non-medical collection accounts.
- The 5% rule is exempt
- No matter how much the medical collection account outstanding balance is, no portion of it is taken out and used for debt to income ratio calculations
FHA Guidelines On Credit Disputes
Credit Disputes are frowned upon by all lenders.
- Credit Disputes are not permitted during the mortgage process on non-medical collections and charged off accounts
- The mortgage process will come to a suspense status unless the credit dispute is removed
- A new credit report needs to be pulled to reflect the corrected updated credit report with the credit disputes retracted by the consumer
- Reason being is when a consumer disputes a credit tradeline, the credit bureaus automatically discounts the negative item from the credit scoring model
- So if the negative credit item is disputed by the consumer, the credit bureaus will take that negative item off the scoring model like it does not exists
- Therefore, consumer credit scores will increase when there is a disputed tradeline
- When the dispute is retracted or resolved and remains as a derogatory, that negative item is factored back in to the credit scoring model
- Therefore, all credit disputes that are retracted, the consumer credit scores will drop.
- The extent of the drop depends on how recent the derogatory item is
FHA Guidelines On Credit Disputes On Medical Collections
Medical collections are exempt with credit disputes.
- Borrowers can have credit disputes on medical collections
- For medical collections, there is no restrictions on unpaid collection account balances
- It is often ignored unless the particular lender may have their own overlays
Can I Qualify For FHA Loan With Charge Offs? YES!
- Old collection accounts that the creditor deems uncollectible are charged off on credit report
- HUD Guidelines On Charged Off Collection Accounts does not require borrowers to pay off
- Outstanding charged off accounts to qualify for FHA Loans
- If a borrower goes to a lender and that lender tells the borrower that they do not qualify for a FHA Loan due to charge off, it is because of that lender overlays and NOT HUD Guidelines
- Borrowers cannot have credit dispute on charged off accounts
- The credit dispute needs to be removed
- The mortgage process will come into a complete halt if there are credit dispute
- Once credit disputes are retracted, borrower’s credit scores will drop
FHA Guidelines On Charge Offs And Collection Accounts: What Are Charge Offs?
A charge off is when a creditor writes the debt off as uncollectible.
- Many consumers may have unpaid collection accounts that reports as charge offs on their credit reports
- Charge offs do not count and FHA does not require any charge offs to be paid off since it has been written off
- Also, those with charge offs will find it next to impossible to pay the charge offs
- This is because nobody can technically take their payments since it has been written off their books
About The Author Of FHA Guidelines On Charge Offs And Collection Accounts
Dale Elenteny is the author of FHA Guidelines On Charge Offs And Collection Accounts. Dale is a senior mortgage advisor of Gustan Cho Associates, the national consumer direct division of Loan Cabin Inc. NMLS 1657322. Dale Elenteny is a guest writer for Gustan Cho Associates Mortgage Group. Dale has has extensive experience in real estate, commercial and residential lending, and real estate investments. A real estate investor himself, Dale is also a licensed mortgage loan originator in multiple states and has a national reputation of helping borrowers get qualified for mortgages where others cannot. Dale Elenteny of Gustan Cho Associates does not give up. It is not if you get a loan with Matt but when. Stay tuned for more blogs by Dale Elenteny of Gustan Cho Associates.
This BLOG On FHA Guidelines On Charge Offs And Collection Accounts Was UPDATED On December 7th, 2018
Mortgage With 580 FICO
This BLOG On Qualifying For Mortgage With 580 FICO Was Written By Gustan Cho NMLS 873293
Many times, it is in a potential borrower’s best interest to participate in a credible credit repair program. Often times, a borrower does not understand why they should do this if they meet the minimum credit score a lender requires for mortgage approval. It is something that is referred by our group on nearly a daily basis, even if your credit score is at or above the minimum to obtain approval.
Can I Apply For A Mortgage With 580 FICO?
It is true, some lenders will lend Mortgage With 580 FICO for a FHA, and simply follow the AUS findings.
- This is perfectly acceptable if time is of the essence and there is no additional time to wait. However, those lenders may have one or two additional overlays to mitigate the risk of lending to a borrower with a lower credit score.
- Additionally, even though a 580 credit score can be fully insured by the Federal Housing Administration, it does not mean that there are not some additional restrictions that apply.
- For instance, the housing ratio and the overall debt to income ratio are going to be lower for those borrowers than they would be for a borrower that has a 620 FICO credit score.
Mortgage With 580 FICO With AUS Approval
While borrowers will likely get an AUS approval their options are still going to be a bit more limited than someone else.
- Sometimes this plays a factor of being able to purchase the home you really want or not.
- From that point, it is important to then consider the mortgage lender overlays that they have for credit scores from 580-619.
- For instance, your housing ratio is limited to 31%, versus a borrower with a 620 credit score who can have a housing ratio as high as 46.9% for FHA mortgages.
- A borrower with a 580 credit scores have a maximum allowed back end debt to income ratio of 43%, versus a borrower with a 620 credit score who can a ratio of 56.9%.
Mortgage With 580 FICO And 619 FICO
That seems insignificant, however, for many borrowers, this can be prohibitive.
- Additionally, for those borrowers with a credit score between 580-619 and who are married, even if the spouse is not going on the mortgage, we still need to consider the spouse’s debt as part of the overall debt to income ratio.
- If the spouse has any outstanding judgments, those must be satisfied prior to closing. This is an example of a lender overlay.
Overlays On Credit Scores
The Gustan Cho Team at USA Mortgage has no overlays on government and conventional loans.
- This overlay has significant impacts on the overall landscape of the mortgage profile because while the lender will consider the debt, they cannot consider the income of the non-borrowing spouse.
- In addition to the restrictions listed above, there will likely be mortgage pricing impacts and the interest rate will be less advantageous than ones offered to those borrowers with a 620 FICO score.
What is FACTA and How To Get Your Items Removed?
Given all of the above information, this is where credit repair comes in handy.
- There are reputable and not so reputable credit repair companies out there.
- There are certainly those companies that offer credit repair, but do not do anything other than open disputes on every derogatory item on your credit report to see what will stick.
- There are also credit repair companies that know the laws, and use the reporting violations offered under the Fair and Accurate Credit Transaction Act (FACTA) and the Fair Credit Reporting Act (FCRA) to get items removed.
- Credit repair companies that repair credit using these two acts to repair credit are where a borrower is going to get the best return.
- Reputable credit repair companies will often offer a money back guarantee and a guaranteed mortgage approval for clients.
Rapid Rescoring VS Credit Repair
The first step within the fast rescore method is to get a duplicate of your credit report.
- Consumers are entitled by federal law to receive a free credit report once each year from every of the key credit bureaus, Equifax, Transunion and Experian.
- You can begin with a free report, however a investor can have to be compelled to request your credit report themselves to order a fast rescore.
The rescoring method can vary per the things being updated. for example, if scores square measure low attributable to high master card balances, you’ll have to be compelled to pay down the cards before requesting the updates. the overall procedure is as follows.
- Determine why credit scores square measure low
- Find out whether or not the things square measure able to be corrected
- Pay down master card balances or gather documentation proving a slip-up
- Contact the someone. acquire proof of updated records
- Provide this documentation to the investor or broker.
- The investor orders the fast rescore victimization this documentation
- The investor can receive Associate in Nursing updated report typically among 3 to seven days.
Rapid Rescores Accelerate shopping
Without a fast rescore, a brand new credit report and score may take months. The investor usually desires a better score to issue a pre-approval letter. the client desires that letter in-hand to start out seriously craving for a home.Borrowers can qualify for Mortgage With 580 FICO with 3.5% down payment.
Waiting for a credit score to enhance by ancient ways will appear to be Associate in Nursing eternity. the additional effort it takes to initiate a fast rescore is well definitely worth the weeks or months lost by taking a passive approach to raising your credit scores.
