Do FHA mortgage lenders require that all collections to be paid off to be eligible for FHA mortgage loan

SELF EMPLOYED MORTGAGE LENDERS QUESTIONS AND ANSWERSCategory: FHA QuestionsDo FHA mortgage lenders require that all collections to be paid off to be eligible for FHA mortgage loan
Thomas Martin Staff asked 4 years ago

A Collection Account refers to a mortgage applicants  debt that has been submitted to a collection agency by a creditor.  

If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the FHA mortgage lender must do 1 of the following: 
•     verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds; 
•     verify that the FHA mortgage applicant has made payment arrangements with the creditor and include the monthly payment in the Borrower’s Debt-to-Income ratio (DTI); or 
•      if a payment arrangement is not available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the Borrower’s debt to income ratio.  Collection accounts of a non-borrowing spouse in a community property state must be included in the $2,000 cumulative balance and analyzed as part of the Borrower’s ability to pay all collection accounts, unless excluded by state law.   Unless the lender uses 5 percent of the outstanding balance, the FHA mortgage lender must provide the following documentation: 
•     evidence of payment in full, if paid prior to settlement; 
•     the payoff statement, if paid at settlement; or 
•     the payment arrangement with creditor, if not paid prior to or at settlement.  For manually underwritten loans, the FHA ,mortgage lender must determine if collection accounts were a result of: 
•     the Borrower’s disregard for financial obligations; 
•     the Borrower’s inability to manage debt; or 
•     extenuating circumstances.  

The FHA mortgage lender must document reasons for approving a mortgage when the Borrower has any collection accounts. The Borrower must provide a letter of explanation, which is supported by documentation, for each outstanding collection account. The explanation and supporting documentation must be consistent with other credit information in the file. 

FHA Mortgage Lenders By State: 
Florida   Texas  Georgia  Alabama   California  

Latest pages

Serving These Fine Texas Cities

About Us

We are US Mortgage Lenders. Major real estate brokerages regularly entrust their clients to our team due to our reputation for transparency, delivering on time, customer satisfaction and loyalty. With five-star customer reviews on Zillow.com and counting, you’re assured of having the backing of an experienced team.

Show Buttons
Hide Buttons