FHA announced a shocking change in their guidelines (Mtg. Letter 2012-3) for borrowers who have unsettled or unpaid collections and gave further guidance to FHA borrowers who have open unresolved disputes reporting on their credit report.
This guideline change, for many borrowers, will make qualifying for a FHA loan in California more complicated, likely to cause delays, possibly reduce qualifying amounts, and even lead to more FHA loans being denied…..if you’re not careful. Make sure your loan officer knows what they are doing.
I feel bad for the borrowers working with loan officers who don’t pay attention to these detailed guideline changes…..they’re in for a big surprise when their file reaches underwriting and comes back with the big ‘D’ stamp on it.
How often do FHA borrowers get denied while in escrow to purchase a home? All the time….way more than you care to imagine. I get 2-3 calls a week from denied buyers in jeopardy of losing their earnest deposit money asking if I can do anything or get them an exception because their lender wrongly preapproved them.
Many of these people never should have been pre-approved, but many I’m still able to get approved through my bank.
Do This===> FHA Loan Approval & Rate Quote
New FHA Guideline for Collection Accounts
Starting April 1st FHA will now require collection accounts totaling over $1,000 outstanding balance must be resolved prior to being eligible for FHA loan approval. If total balance of collections is less than $1,000, borrower is not required to resolve collection accounts to receive loan approval.
Resolved means the collection accounts must either be paid in full at time of closing or entered into a re-payment agreement with a minimum three months verified pay history.
Borrowers CANNOT pay down the balance of collections under $1,000 during the origination process. If this is done, it must be done prior to loan application.
Charge-offs will not count as a collection or towards the $1,000 limit.
FHA will also now require Medical collections be paid as well if the total is over that $1,000 mark.
New FHA Guideline for Disputed Credit Accounts
Borrowers with credit accounts in dispute will no longer need to have that dispute status removed or classified as resolved if the accounts meet these two conditions:
- Total outstanding (cumulative) balance of all disputed accounts or collections is less than $1,000, and
- Disputed credit accounts or collections are aged two years form date of last activity as indicated on the credit report.
What About Identity or Credit Card Theft?
Disputed accounts or collections resulting from identity theft, credit card theft, or unauthorized use will be EXCLUDED from the $1,000 limit IF the borrower can document (prove) they filed an identity theft report or police report to dispute the findings. Letters from creditors acknowledging and supporting this would suffice as well.
Do This===> FHA Loan Approval & Rate Quote
FHA Loans and Judgments on Credit Report
All judgements must be paid before being able eligible for an FHA loan…or any loan! The only exception to payoff of a court ordered judgment is if the borrower has an agreement with the creditor to make regular and timely payments and provides documentation that a minimum of three months have been paid according to the agreement.
If you want assistance with your pre-approval or want to avoid surprises (like getting denied) when qualifying for your FHA home loan, call me direct (951) 215-6119 or contact me.
Related Articles of Interest:
Comments are closed.