Lending answer:

Both of Tom's answers are spot on correct. Read them carefully... they are not contradictory. FHA cares about collections, some collections (such as medical) may be left "open", and it is at the lender's discretion. All true.

The guiding principals for the FHA underwriter are (1) does the collection indicate a likelihood of default by the borrower and (2) will the collection, if left open, possibly result in a lien against the property (thereby creating a risk to FHA's insurance guarantee)?

In addition to FHA's guidelines (which permit wide discretion to underwriters), the lender will have its own rules and possibly answer to its investors' rules.

As Tom says: Ask up front. You might also ask if the lender you select employees "DE" FHA underwriters. Simplifying greatly, DE underwriters have broader authority in granting credit exceptions than a "regular" FHA underwriter.

The good news is that a medical collection for less than $1100 won't be a significant problem if it is offset by other accounts with a good history.

Employment with the same employer for 18 or more months, presence of a saving account, presence of a retirement plan/account, or cash reserves after closing may also help offset the negative impact of the collection in underwriting your application.

Pollo,
Tom is correct.FHA cares about all collections. Medical if an emergency can pass off easier than a Ford 150 . but we should pay our bills. If this is all you owe why not talk to them and make a deal to pay so much.
Many hosp. and Dr's if you show your tax returns will write it off. If you were able to pay it they may take less and write it off. If you have the 3.5% to put down on a home you can pay this bill.
Margaret

Pollo....

I feel compelled to clear up some of the wrong answers.

1. FHA absolutely cares about collections!! They are a part of your overall credit picture. However, with a good balance of good accounts FHA will allow those collections and charge offs to remain unpaid at the lender's discretion. Many lenders will not require them to be paid... If you are asked to pay them, you can always look for another lender. ASK UP FRONT about their policy.

2. Medical collections are no different any other collection to FHA. Some underwriters for the lenders will consider them less severe... But FHA does not ignore them nor do they view them differently.

It is true that you will likely need a 620+ FICO score. Almost every lender is using that for a benchmark.

Below, you will see a link to a free resource about credit.

FHA does not look at medical collections. Their minimum credit score just went to 620. Call the Lender I use for FHA: Dave Ellison, IWAY Loans 832-439-5562.

I have a lender you can call for free and they can pre-approve you and/or tell you what you need to do. Normally they dont want any lates in last 12-24 months, but medical seems to be viewed differently. Let them look at the whole picture. Let me know if your interested in speaking with them, and its Free!

Yes, FHA does NOT require collections to be paid (Some lenders do though).
If you have some good credit to balance out the collections, you might have a great shot at inancing.