FHA changing collection account, judgments & disputed account guidelines (effective 10/15/13)

[ShanetheMortgageMan]

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@skinsfan83 wrote:

I wonder if the amount has something to do with her telling me to pay it? It's around $6,000. I'm thinking she didn't send it to underwriting because my mid score was only 629 and I have an unpaid judgment. I'm going to pay the judgment in the next few weeks. She also wanted me to pay down my CC which I will be able to do in a few weeks too. The charge off is scheduled to fall off in February so I was just going to hold off and wait until then but if I can get approved with the charge off I would like to start looking now.

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Each lender may have their own underwriting overlays.  Per current FHA guidelines, there is no requirement to pay charge-offs or collections or have them entered into a payment plan.  Some lenders still require collections/charge-offs over a certain amount to be paid though, so it's always good to ask about the owing collection/charge-off policy during the initial conversations with your loan officer.

[ShanetheMortgageMan]

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@Blended wrote:

• We've made all of out installment loan payments on time for the last year, but still showing accounts in dispute. Should we remove those statuses or does it matter?
• Do we need to address any of the unpaid collections/CO accounts that are less than $1000?

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1.  It depends on if they would fit into the "derogatory credit accounts" definition of disputed charge-off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.  So if those installment loans have had late payments within the past 24 months then you should probably remove them from being in dispute otherwise your loan would need to be manually underwritten (which isn't the end of the world, but it makes it more difficult to qualify).

2.  It depends on what the total accumulated amount of unpaid non-medical collections are and if your debt ratio can absorb 5% of the balances (if total non-medical collections are $2k or more) as a monthly payment.

[ShanetheMortgageMan]

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@fixmycred14 wrote:

I am a little confused...so charge-offs are "excluded" and will not disqualify you from obtaining an FHA loan?

What about charge-offs that have fallen off of the report that are 10+ years old? Are you required to disclose this information?

I've heard that the min score is 580 or 620. Which is correct to qualify for an FHA loan?

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Per FHA, correct, charge-offs will not be looked at more negatively than they currently are now.  Lenders are free to make their own "overlay" guidelines on top of FHA's though.

If the charge-off is still within it's SOL, yes.

FHA just requires a 500 credit score, but anything less than a 580 credit score requires a 10% down payment.  Further, any score less than 620 and debt-to-income ratio that exceeds 43% must be manually underwritten.

[ShanetheMortgageMan]

Just a reminder that these new guidelines are now in effect for any new FHA loan that had it's case # pulled on 10/15/13 or afterwards.

[Ms-Thang38]

congrats & very informative...

[TeeGee]

I want to apply for an FHA loan and I am wondering about the new collection account on my credit report for $3,600 to a hospital for a surgery.  Before that, my credit score was 690 with almost maxed credit cards - once the cards are paid off by the end of this month, my score WOULD be over 700.

I noticed this memo "excluded" medical collections.  Does anyone know if that means they are overlooked or require further scrutiny?

Thanks in advance!

[TeeGee]

Shane, was hoping you could answer this question:

I want to apply for an FHA loan and I am wondering about the new collection account on my credit report for $3,600 to a hospital in 2008 for a surgery.  Before the CA hit my credit report in October of 2013, my credit score was 690 with almost maxed credit cards - once the cards are paid off by the end of this month, my score would be over 700.

I noticed this memo "excluded" medical collections.  Does this mean they are overlooked or require further scrutiny?

Thanks in advance!

[arock]

I was also wondering about the same medical bill exclusion. We have a medical collection that has been on our report for two years for $5100. There was an issue with insurance and we tried to dispute having to pay. Can we get an fha loan due to it being a medical collection?

[ShanetheMortgageMan]

Medical collections are excluded.  You would have to explain the collection, but FHA doesn't require it to be paid/in repayment/etc.  Individual lenders may have overlay guidelines that require it to be paid though, for example there is one lender I know of that requires all collections to be paid if the total balance on them is $5k+.