Fairway Mortgage can get loan approvals with FHA Guidelines On Charge Offs
27 Mar

FHA Guidelines On Charge Offs

FHA Guidelines On Charge Offs

Derogatory Credit Items Affect Many Borrowers

I have noticed that potential borrowers are holding more debt than ever before and the possibility of these borrowers having derogatory marks on their credit report and credit history is significantly higher than it has been in years past.  Given the amount of accounts that may currently be in collection or charge off status may negatively affect borrowers into not thinking they can obtain a mortgage, but this is not the case as there are FHA Guidelines On Charge Offs that will allow for borrowers to purchase homes. 

Minimum FHA Guidelines were created in order to get the most borrowers possible to purchase homes, but you might see that you still receive denials from lenders even though you may meet these guidelines.  The reason why you are getting denials is probably due to the lender overlays that are in place for specific loan programs.  Lender Overlays are requirements that need to be met which are above and beyond minimum loan guidelines.  Lenders are well within their rights to have overlays and enforce them because what they are ultimately trying to do is only lend to a certain type of borrower in order to limit risk.  In working with Fairway Independent Mortgage Corporation NMLS# 2289 I have made sure we will be able to approve loans to borrowers given the minimum guidelines, especially when it comes to FHA Guidelines On Charge Offs.

FHA Guidelines On Charge Offs: Collection Accounts Prior to Charge Off

Before we can get to FHA Guidelines On Charge Offs I need to go over how accounts and debts get to charge off status on your credit report. 

  1. Original Debt is issued to the borrower and payment of this debt is expected like any other debt that could be obtained.
  2. If debt goes unpaid, collection practices are enforced with these accounts being turned over to collection agencies.  Collection agencies will pursue the borrower to receive payments on the unpaid debts.
  3. If after months / years the debts are still unpaid and collection practices are exhausted the account can be determined as uncollectible or charged off.  This means that the original creditor is not pursuing the payment on this debt any longer.

In the past I have gone over how FHA treats collection accounts, but if you don’t remember there are 2 categories: Medical and Non-Medical collection accounts.  FHA treats these situations differently with medical collections not being used against the borrower when trying to get a loan which means it is not used to the borrowers debt to income ratio calculation.  Now in terms of non-medical collection accounts, these affect the debt to income ratio if the total amount of debts exceeds $2,000.  If all non-medical collections are greater than $2,000 then 5% of the balance is used in the borrower debt to income ratio.  If you have $4,000 in non-medical collections you will have to calculate $200 of this into your debt to income ratio.

FHA Guidelines On Charge Offs

Now that you know how debts can progress on your credit report I can now go into the FHA Guidelines On Charge Offs and if this will affect your ability to purchase a home.  FHA Guidelines On Charge Offs look at charge offs in 2 categories and they are non-medical charge offs and mortgage charge offs.  When it comes to non-medical charge off accounts, FHA guidelines treat these debts as if they are medical collections and they will not be held against the borrower or reflective in their debt to income ratio.  Where FHA Guidelines On Charge Offs can possibly slow down your ability to obtain a loan comes with mortgage charge off accounts.  If you have a mortgage on your credit report, whether it is a 1st or 2nd mortgage, that has been charged off, you will need to wait 3 years from the date of it being charged off before you can get an FHA Loan again.

As you can see, FHA Guidelines On Charge Offs are pretty favorable to borrowers and if you work with me I can analyze your credit report and score to determine if we are able to get you into a home using an FHA Loan.  In working with Fairway Independent Mortgage Corporation NMLS# 2289 they only enforce the minimum loan guidelines, so as long as you can satisfy all FHA Guidelines On Charge Offs and standard FHA guidelines, you shouldn’t have a problem getting an approval.  I have seen many discouraged borrowers but nothing satisfies me more than working hand-in-hand with borrowers to get them to home ownership. I am here for you at any time, day or night, nights, weekends, and holidays. I am a quick phone call away and can be reached at 630-465-2656. If you think you qualify, you can get started by filling out an application here.

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