FHA Guideline On Collection

The below is part of the guidelines to achieving an FHA insured mortgage when collections are unpaid.

“4155.1 4.C.2.e Capacity Analysis of Collections and Judgments

Collections – FHA does not require collection accounts to be paid off as a condition of mortgage approval. However, FHA does recognize that collection efforts by the creditor for unpaid collections could affect the borrower’s ability to repay the mortgage. To mitigate this risk, FHA is requiring a capacity analysis of collection accounts with an aggregate balance equal to or greater than $2,000, as described below.

If the total outstanding balance of all collection accounts for all borrowers is equal to or greater than $2,000, the lender must perform a capacity analysis as detailed below. Unless excluded under state law, collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance.

All medical collections and charge off accounts are excluded from this guidance and do not require resolution.

Capacity analysis includes any of the following actions:

 At the time of or prior to closing, payment in full of the collection account (verification of acceptable source of funds required).

 The borrower makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower’s debt-to-income ratio.

 If evidence of a payment arrangement is not available, the lender must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower’s debt-to-income ratio.

TOTAL Mortgage Scorecard Accept/Approve/Refer – Regardless of the Accept/Approve/Refer recommendation by TOTAL Mortgage Scorecard, the lender must include the payment amount in the calculation of the borrower’s debt-to-income ratio.”

So call one of our agents or a loan officer to see which lender will underwrite this circumstance.

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