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In March of 2012, there were reports of pending alterations to FHA rules on collections and judgment actions that could affect an FHA loan application. A borrower who had outstanding collection actions against them would be affected by the changes in FHA requirements.
According to FHA Mortgagee Letter 12-03, new changes to the rules for collections and judgments were due to change as follows:
â€œIf the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments- paid as agreed) or paid in full at the time of, or prior to closing.â€
Those changes as described above have been cancelled pending further review by the FHA and HUD.
FHA later issued a new Mortgagee Letter stating that the new requirement, due to take effect on July 1, 2012, has been rescinded and will not take effect pending clarification and additional guidance.
FHA Mortgagee Letter 12-10 explains the cancellation of the new rules. â€œIn order to provide clarification of policies concerning Disputed Accounts and Collection Accounts through future guidance, FHA is rescinding the new guidance on the following topics in Mortgagee Letter (ML) 2012-3, which was to become effective July 1, 2012â€“â€Handling of Disputed Accounts, Public Records FHA Total User Guide Chapter 2, and Handbook 4155.1 4.C.2.e, Paying off Collections and Judgments.â€
This can be a confusing issue for some borrowers. At the time of this writing, FHA rules currently in effect state:
â€œIf the credit report reveals that the borrower is disputing any credit accounts or public records, the mortgage application must be referred to a Direct Endorsement underwriter for review.â€
Also, â€œFHA does not require that collection accounts be paid off as a condition of mortgage approval. However, court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsement.â€
That is the rule in effect at the time of this writing.
It should be noted that the FHA has not stated that these changes are permanentâ€“future guidance and clarification on these rules is under development. For more information, see FHA Mortgagee Letter 12-10 at the FHA official site.
I specialize in Under 640 Fico Score Loans and offer credit repair at no cost to raise fico scores to qualify. I can raise fico scores within 3-4 days in most cases. It only takes a few dozen questions to qualify you and go over your options. Here are some links to study and consider that I offer.
Sheryl Arndt, Real Estate Broker - Sr. Loan Officer CA only
REO & Short Sale Specialist
Credit Repair At No Cost
ALL Loan Programs Available
20+ Years Experience
9am till 9pm 7 days
We see many credit reports with low credit scores (anything less than 620), and often many scores in the 500's. This is BAD credit. If you are one of the folks affected by this terrible economy, you have a low credit score and you have a dream of buying a home, here's some simple advice for you.
It is unlikely you could be approved for mortgage financing with that credit score at this time.
Beware of any mortgage professionals promising you an approval with such a low score. Wait on buying a home. I recommend you take the time to resolve your credit issues.
First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.
Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.
I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website.
Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE.
The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.
The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.
*If you thought my answer was helpful, please give me a â€œThumbs Upâ€ or â€œBest Answer.â€ Thanks!
Your credit needs some work.. If you are serious about owning a home, give me a call.. We will review your credit and see what you can do to help bump your scores in conjunction with getting the negative items deleted.
Best of Luck;
CEO & SR Credit Repair Specialist at
Everlasting Credit Repair
Ex-Mortgage Broker of more than 10 years
We also have a DIY service.
The second mortgage on your credit is going to have to be addressed. You may try to negotiate with them for a minimal amount. This is very important: Do not tell them you are trying to buy a home or they will want the FULL AMOUNT and have you by the short hairs. I usually tell my clients to use the "trying to avoid BK" words in the negotiation and they will usually give heavy discounts to get something instead of nothing. What ever the deal is get it in writing. Now here is the downfall from this issue of the second. You are going to have to be in payment arrangements for atleast 3 months or have paid it in full to obtain FHA financing. Now the kicker, after paying 3 payment and qualifying to buy and you don't make payments anymore, they can put a lien on your new mortgage so that when you sell or even refinance, they get there money off the top before you or anyone else. I hope that second isn't for a whole lot?
I specialize in Under 640 Fico Score Loans and offer credit repair at no cost for my clients to raise fico scores to qualify. I can get an idea of what it will take to obtain any financing by looking at your credit reports/profile. If you don't have a lot of funds for 3.5% minimum FHA down payment, you may consider CHF Access half percent down payment program which can also contribute towards your closing costs as well. Your down payment would only be $1,000 and their is closing costs of about 5-6k totaling 6-7k out of pocket. If you don't have that much to invest, you may opt for premium financing as well which can cover near half of the closing costs so you would need about 4k to close with paying all your own closing costs thru the structure of the loan. Your payment with the $1,000 down @200k is approx. $1,464PITI, (principal, interest, taxes and insurance) total on a sfr.
Here is a link to a flyer and links to maximum income limits and a needs list to gather for processing a loan approval. It only takes a few dozen questions to qualify in minutes.
Sheryl Arndt, Real Estate Broker â€“ Sr. Loan Officer CA only
REO & Short Sale Specialist
20+ Years Experience
Chris Burns at First Mortgage offers loans to fit your needs , she is at 951.656.9335
The FHA guidelines for obtaining a loan after foreclosure is 3 years from recording date of sale, please have that date handy.