No, HUD guidelines do not allow a lender to overlook any collection account/charge-off/lien/judgment that is listed on your credit report. This is because a pattern of previous derogatory items may reveal a disregard for the importance of credit and paying all accounts on time.
New HUD guidelines on collection accounts took effect on October 15th. There is a difference between collection accounts and charge-offs though. You would need to make sure the account is listed a charge-off on the credit report and its not actually a collection account.
Payoff of Collection Accounts
Â· FHA does not require pay off of collection accounts as a condition of mortgage approval.
Â· For loans with a cumulative collection account balance of $2,000 (not including medical) or higher the underwriter must perform a capacity analysis including any of the following actions:
o Pay off of the account(s) prior to, or at closing (verification of acceptable source of funds required).
o Payment arrangements made with the creditor (documentation is required such as letter from creditor, credit report, etc. showing the monthly payment amount). The monthly payment account must be included in the debt ratio for qualifying.
o If no payment arrangements can be confirmed, must qualify using 5% of each account balance as the monthly payment amount.
HUD does not always require the pay off of a charge-off account. That would be up to the Underwriter based on a number of factors. If required, any open derogatory account can be paid off at closing.
If you are looking to purchase a property, working with a knowledgeable and seasoned loan officer is critical in today's market. Getting Pre-Qualified is the only way for you to find out your mortgage options. To get Pre-Qualified for your purchase, you can submit your request online at http://www.rodneymason.com
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Rodney Mason, NMLS #151088
Sr Loan Officer
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia with over a decade of mortgage lending experience.
Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203(k) Renovation (Streamline & Consultant) | HomePathÂ® | HomePathÂ® Renovation | HomeStyleÂ® Renovation | VA | USDA | GA Dream | Jumbo Financing.