HUD Collection And Charged-Off Account Guidelines On FHA Loans
This article covers HUD Collection And Charged-Off Account Guidelines on FHA loans for borrowers with outstanding collection and charged-off accounts.
HUD Collections And Charged-Off Accounts Guidelines on FHA loans remain the same. Mortgage borrowers do not have to pay outstanding collections and/or charged-off accounts to qualify for an FHA loan. The coronavirus outbreak has shaken up the mortgage industry. Most lenders have increased lending standards, often called lender overlays. Most lenders have increased the minimum credit score requirements on FHA loans to 640 to 680 FICO. The minimum credit score of 580 FICO to qualify for a 3.5% down payment home purchase FHA loan per HUD Mortgage Guidelines. Lenders can require a higher credit score requirement that is higher than the minimum HUD guidelines on FHA loans. This higher lending requirement is called lender overlays from lenders. Per HUD agency mortgage guidelines, the minimum credit score required on FHA loans is 500 FICO. Per HUD agency guidelines, a 10% down payment is required for borrowers with credit scores between 500 to 579 FICO versus a 3.5% down payment. However, most lenders do not accept any borrowers with under 580 credit scores as part of their lender overlays. It is perfectly legal for mortgage companies to refuse lower credit score borrowers due to layered risk. HUD Collection And Charged-Off Account Guidelines specifically state borrowers DO NOT have to pay outstanding collections and/or charged-off accounts to qualify for an FHA loan. However, many lenders have imposed lender overlays where they require borrowers to pay outstanding collections and charged-off accounts. This holds true even though HUD does not require it. Lenders are becoming more and more careful with the performance of the loan they originate and fund. Outstanding collection accounts are classified as medical and non-medical collection accounts. There are two different types of guidelines on outstanding non-medical versus non-medical collection accounts. Each type of collections are treated differently per HUD agency mortgage guidelines.
HUD Collection And Charged-Off Account Guidelines Versus Lender Overlays
Understanding lender overlays is important. Most mortgage companies have lender overlays. Not all mortgage companies have the same lender overlays on FHA, VA, USDA, and conventional loans. This holds especially true for borrowers with less than perfect credit and/or credit issues. All lenders need to make sure all borrowers meet the minimum HUD Mortgage Agency Mortgage Guidelines. However, mortgage companies can impose higher lending standards that are above and beyond the minimum HUD Agency Guidelines on FHA loans. The higher lending standards above and beyond the minimum HUD agency guidelines imposed by mortgage companies are called lender overlays. Lenders can have lender overlays on just about anything. It is very important for borrowers to understand the basic agency guidelines of HUD so if they get denied from a lender they will understand whether it was due to lender overlays or because they did not meet the agency mortgage guidelines on FHA loans. If they meet the minimum agency mortgage guidelines, they can qualify for a mortgage with a different lender with no lender overlays.
How Lender Overlays By Mortgage Companies Work
Not all lenders have the same lender overlays. One lender may have overlays on collection accounts and/or charged-off accounts but not on credit scores while another lender may have overlays on collections but not charged-off accounts. This is why it is important to understand agency guidelines versus lender overlays. Not all lenders have the same mortgage guidelines on FHA loans. Just because you do not qualify for an FHA loan with one lender may not mean you do not qualify for an FHA loan with a different lender. As long as you meet the minimum HUD Agency Guidelines, you will qualify for an FHA loan with a lender with no overlays such as Gustan Cho Associates. GCA Mortgage Group has no lender overlays on FHA, VA, USDA, and Conventional loans.
How Mortgage Underwriters Treat Collection And Charged-Off Accounts
In this paragraph, we will discuss and cover how mortgage underwriters analyze collections and charged-off accounts. Collections are categorized into two different categories:
- Non-Medical Collections
- Medical Collections
With non-medical collections that are greater than $2,000, mortgage underwriters are required to take 5% of the outstanding collection balance and use it as a hypothetical monthly debt. The borrower does not have to pay anything. It is just a hypothetical monthly debt used by underwriters when calculating the borrower’s debt to income ratios. This is not the case with medical collections and charged-off accounts. The 5% rule is exempt from medical collections and charged-off accounts. The main reason why 5% of the outstanding non-medical collection account is used as a monthly hypothetical debt is the even if the collection account turns into a judgment. A judgment creditor can lien the property and/or other assets of a homeowner. Gustan Cho Associates does not require collections and charged-off accounts to be paid to qualify for FHA loans.
Qualifying For An FHA Loan With Bad Credit With A Lender With No Lenders Overlays
Gustan Cho Associates is a national five-star mortgage company licensed in multiple states with no lender overlays. Over 75% of our borrowers are folks who either got a last-minute mortgage denial and/or could not qualify due to its lender overlays. GCA Mortgage Group just goes off the automated findings of the automated underwriting system (AUS). When other mortgage companies say NO, the team at Gustan Cho Associates says YES. As long as you get an approve/eligible per AUS, you are set to go. GCA Mortgage Group will not have any other lending requirements that are above and beyond the AUS findings. A substantial number of our borrowers are folks who get approved for FHA and VA loans with credit scores down to 500 FICO. We have countless folks who are in Chapter 13 Bankruptcy repayment who we help purchase a home with a VA and/or FHA loan. You do not need to have the Chapter 13 Bankruptcy discharged to qualify for an FHA or VA loan. There are no waiting period requirements to qualify for an FHA or VA loan after the Chapter 13 Bankruptcy discharge. Gustan Cho Associates are mortgage bankers, correspondent lenders, and mortgage brokers, We have no lender overlays on FHA, VA, USDA, and conventional loans and have the ability to broker non-QM and specialty alternative mortgage loan programs. Some of our alternative non-QM mortgages include no-doc home loans, P and L stated income mortgages, traditional 90% LTV jumbo mortgages, non-QM loans with credit scores down to 500 FICO, non-QM mortgages one day out of bankruptcy and foreclosure, and dozens of other specialty loan programs.
GCA Mortgage Is A Mortgage Company Licensed In Multiple States With No Lender Overlays On Government And Conventional Loans
To qualify for a mortgage with a mortgage company licensed in multiple states with no lender overlays on government and conventional loans, please contact us at Gustan Cho Associates at 800-900-8569 or email us at gcho@gustancho.com. Text us for a faster response. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates has a national reputation for being a one-stop mortgage shop. Over 75% of our borrowers could not qualify at other mortgage companies due to their lender overlays.
