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HUD Charge Off Mortgage Guidelines On FHA Home Loans

ByGustan Cho

This Article Is About HUD Charge Off Mortgage Guidelines On FHA Home Loans

FHA Loans is one of the most popular mortgage loan programs in the United States. FHA loans are the easiest loan program for borrowers with less than perfect credit, lower credit scores, higher debt to income ratios, and past prior bad credit. Per HUD Charge Off And Collections Mortgage Guidelines, borrowers do not have to pay outstanding charged-off and collection accounts to qualify for FHA Loans. It is much easier to get an approve/eligible per automated underwriting system (AUS) with outstanding collections and charged-off accounts on FHA Loans than any other loan program. The U.S. Department of Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA). HUD has created and implemented very lenient mortgage guidelines for borrowers to qualify for FHA Mortgages. In this blog, we will discuss HUD Charge Off Mortgage Guidelines.

Why Do Lenders Have Different Lending Requirements On FHA Loans

Over 75% of our borrowers at Gustan Cho Associates are folks who qualify for FHA Loans BUT could not qualify at other lenders. Why is this possible?

This is due to lender overlays. All lenders require and mandate that borrowers meet the minimum HUD Agency Mortgage Guidelines. However, every lender can have its own lending requirements called lender overlays. For example, HUD minimum credit score requirements to qualify for a 3.5% down payment FHA loan is 580 FICO. However, most lenders will require borrowers have a 620 to 640 credit score to qualify for an FHA loan. This holds true even though HUD Credit Score Requirements is at 580. Many borrowers who come to us are told they need to pay their charge off accounts in full to qualify with them. This holds true even though HUD Charge Off Mortgage Guidelines state borrowers do not have to pay outstanding charged-off accounts. Borrowers also do not have to pay outstanding collection accounts either to qualify for FHA loans. Unfortunately, most lenders still require borrowers to pay their outstanding collection accounts because they have lender overlays on collections.

HUD Charge Off And Collections Mortgage Guidelines

All lenders need to have their borrowers meet the minimum HUD Agency Mortgage Guidelines on FHA loans. However, most lenders will also have additional mortgage requirements that are above and beyond those of the minimum Agency Guidelines called lender overlays.

Here are the basic HUD Charge Off And Collections Mortgage Guidelines on FHA loans:

  • Outstanding collections and charged-off accounts do not have to be paid to qualify for FHA loans
  • Collections are categorized into two categories
  • Medical and non-medical collections
  • With non-medical collections with an aggregate balance of $2,000 or higher, lenders are required to take 5% of the outstanding debt as use it as a monthly hypothetical monthly debt when qualifying DTI calculations
  • Medical collections are exempt from this 5% rule
  • Charge off accounts are exempt from this 5% rule
  • Non-medical collections under $2,000 of aggregate balance are exempt from the 5% rule

If the 5% of the outstanding balance is a large amount that disqualifies borrowers and exceeds the maximum DTI allow, borrowers can enter into a written payment agreement with the creditor. The amount agreed upon on the written payment agreement can be used in lieu of 5% of the outstanding collection amount. There is no seasoning required with the payment agreement. Charged Off Accounts are treated like medical collections and the 5% rule is exempt.

Qualifying For Mortgage With Direct Lender With No Overlays

Borrowers who need to qualify for FHA loans 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. Gustan Cho Associates has a national reputation for being able to do loans other mortgage companies cannot do. Over 75% of our borrowers are folks who could not qualify at other lenders or gotten a last-minute mortgage loan denial. Gustan Cho Associates are mortgage bankers, correspondent lenders, and mortgage brokers. We have our own in-house mortgage underwriters and support/operations staff to process, underwrite, fund, and close FHA, VA, USDA, conventional loans. We are able to broker non-QM loans such as no-doc loans, stated income mortgages, bank statements mortgages, P and L stated income loans, asset-depletion mortgages, and dozens of other specialty mortgage loan programs. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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