How do collections and charge offs on the credit report affect a Kentucky VA Mortgage Loan Approval?

In order to get approved for a Kentucky VA loan with outstanding collections and charge offs listed on

the credit report, the VA underwriter will want to know the following about them:

Collections & Charge Offs are two different things.  Below is what VA saying about them:

 

Collection Accounts

Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. A credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval.

However, collection accounts must be considered part of the borrower's overall credit history and unpaid collection accounts should be considered open, recent credit.

Borrowers with a history of collection accounts should have re-established satisfactory credit in order to be considered a satisfactory credit risk.

While VA does not require that collection accounts be paid-off prior to closing if the borrower's overall credit is acceptable, an underwriter must address the existence of the collection account(s) with an explanation on VA Form 26-6393, Loan Analysis, for excluding the negative credit history they represent.

If the collection account is listed on the credit report with a minimum payment, then the debt should be recognized at the minimum payment amount.

Charged off Accounts

These accounts are typically collections in which the creditor is no longer pursuing collection of the account. The underwriter must address the circumstances regarding the negative credit history when reviewing the overall credit of the borrower(s).

 

 
2 different topics best if you can send me credit to review. 

 

·         Charged off accounts generally ignored

·         Collection accounts on Federal debt are a big issue so we careful there

·         Collections not required to be paid off unless they are extremely high

·         Manual Underwrite we do require an LOE from Veteran for collections

·         What happened, what they did to resolve, what are they doing in the future to either resolve or to prevent this from happening and finally if they are going to enter into a payment plan or not.  Ultimately on the resolution of the collection the UW does not care but VA requires that as part of LOE.

 

Hope this helps send me credit for full evaluation.

 

The VA underwriter will want to verify the Kentucky Mortgage Veteran has the ability to pay these items or will want to know how they were paid off before closing.

Any collection or charge off showing as a judgement or lien on the VA mortgage applicant's credit report, must be paid before closing. These affect the title and must be paid before the mortgage is recorded.

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
kentuckyloan@gmail.com
http://www.mylouisvillekentuckymortgage.com/

This website is not affiliated with any government agencies, including the VA. NMLS ID #57916 (www.nmlsconsumeraccess.org)

FHA CHANGES TO HANDLING OF COLLECTIONS, JUDGEMENTS AND DISPUTED ACCOUNTS ON CREDIT REPORT

FHA CHANGES TO HANDLING OF COLLECTIONS

AND DISPUTED ACCOUNTS

FHA recently released Mortgagee Letters 2013-24 and 2013-25, to amend guidance on collections and disputed accounts and to clarify guidance on judgments. These changes will become effective for all case numbers assigned on or after October 15, 2013. This will apply to all FHA programs, with the exception of non-credit qualifying streamline refinances and Home Equity Conversion Mortgages. The changes are found below. Should you have any questions, please contact your Account Manager.

1.           Credit Analysis of Collections and Judgments. Collections and judgments may indicate a borrower's disregard for credit obligations and must be considered in the creditworthiness analysis. The guidance below applies to loans with collection accounts and all judgments. Medical collections and charge off accounts are excluded from this guidance.

• Applicable to Manually Underwritten Loans: The lender must document reasons for approving a mortgage when the borrower has collection accounts or judgments.

Regardless of the amount of outstanding collection accounts or judgments, the lender must determine if the collection account or judgment was a result of:

• The borrower's disregard for financial obligations;
•  The borrower's inability to manage debt; or
• Extenuating circumstances.

The borrower must provide a letter of explanation with supporting documentation for each outstanding collection account and judgment. The explanation and supporting documentation must be consistent with other credit information in the file.

• Applicable to Loans Run Through TOTAL Mortgage Scorecard: TOTAL Mortgage Scorecard Accept/Approve - There are no documentation or letter of explanation requirements for loans with collection accounts or judgments run through TOTAL Mortgage Scorecard receiving an "Accept/Approve" despite the presence of collection accounts or judgments. These accounts have been already taken into consideration in the borrower's credit score. If TOTAL Mortgage Scorecard generates a"Refer," the lender must manually underwrite the loan in accordance with the guidance above applicable to manually underwritten loans with collection accounts and judgments. 

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

2.           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.

               Judgments - FHA requires judgments to be paid off before the mortgage loan is eligible for FHA insurance. An exception to the payoff of a court ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three months of scheduled payments have been made prior to credit approval.

Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three months of payments. Furthermore, lenders are instructed to include the payment amount in the agreement in the calculation of the borrower's debt-to-income ratio.

FHA requires judgments of a non-purchasing spouse in a community property state to be paid in full, or meet the exception guidance for judgments above, unless excluded by state law.

    3.           Handling of Disputed Accounts - The existence of potentially inaccurate information on a borrower's credit report resulting in a dispute must be reviewed by an underwriter. Accounts that appear as disputed on the borrower's credit report are not considered in the credit score utilized by TOTAL Mortgage Scorecard in rating the application. Therefore, FHA requires the lender to consider them in the underwriting analysis as described below.

With this ML, FHA is revising policy on manual downgrades for applications with disputed accounts to reflect the risk associated with derogatory and non-derogatory disputed accounts for factors such as age and size of outstanding balance.

Disputed Derogatory Accounts Indicated on the Credit Report - If the credit report utilized by TOTAL Mortgage Scorecard indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute. The lender must analyze the documentation provided for consistency with other credit information in the file to determine if the derogatory credit account should be considered in the underwriting analysis.

Guidance for TOTAL Mortgage Scorecard Accept/Approve loans with disputed accounts.

Disputed Derogatory Credit Accounts greater than or equal to $1,000	If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a"Refer" and a Direct Endorsement underwriter is required to manually underwrite the loan as described above.
Disputed Derogatory Credit Accounts less than $1,000	If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required.
Excluded Accounts	Disputed medical accounts are excluded from the $1,000 limit and do not require documentation. Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit. However, the lender must provide in the case binder a credit report, letter from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges.

Disputed derogatory credit accounts are defined as follows:

• disputed charge-off accounts,
• disputed collection accounts, and
• disputed accounts with late payments in the last 24 months.

Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a "Refer".

Non-derogatory disputed accounts are excluded from the $1,000 cumulative total.

Non-Derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report - Non-derogatory disputed accounts include the following types of accounts:

• disputed accounts with zero balance,
• disputed accounts with late payments aged 24 months or greater, and
• disputed accounts that are current and paid as agreed.

 If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a "Refer." However, the lender must analyze the effect of the disputed accounts on the borrower's ability to repay the loan. If the dispute results in the borrower's monthly debt payments utilized in computing the debt-to-income ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments.

If you have loans pending that these changes will affect, be sure to order the FHA case number prior to October 15, 2013.

-- 

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
kentuckyloan@gmail.com

Fill out my form for mortgage pre-approval by clicking this link!

Can you get a Kentucky Mortgage Loan with Bad Credit or less than Perfect Credit?

Kentucky Mortgage Loan with Bad Credit

If you are looking to get a mortgage loan in 2020 in the state of Kentucky and you have past credit problems, there maybe some hope for Kentucky Home-buyers to buy a home of their own.

 Before we look at some possible home-buying programs, let's first look at what is considered Bad Credit, or less than perfect credit. 

Most of the times when borrowers say they have bad credit, they mean one of the following:

Past or Current Bankruptcies

Low credit scores or fico scores

Collections on credit report showing unpaid or paid.

Delinquent or behind on credit cards, mortgage, car loan payments

Foreclosure or short sale where they lost a home to default

Owe back taxes to the Federal Government.

Defaulted Student Loans

Delinquent Child Support Obligations
Disputed accounts on credit report

Below I have listed one of the most popular programs Kentucky Home Buyers need to consider when buying a home in 2020 if they have experienced some of the credit issues mentioned above:


When it comes to getting a mortgage loan with past credit problems, FHA is probably going to be your best bet.

They're the most lenient on credit scores, down payment requirements and credit history when it comes to qualifying for a Kentucky Home Loan.

I have listed below some of the requirements you must overcome to get approved for a Kentucky FHA home loan.

Kentucky FHA Mortgage Loans:

The credit score requirements for Kentucky FHA home loans:

FHA says on paper in their written guidelines that they will insure a FHA loan down to 500 - 579 with a 10% down payment or 580+ with a 3.5% down payment. However, in the real world of lending in the secondary market, most lenders will not adhere to these guidelines.

Most FHA investors will want a 620 middle credit score, but they're a few that will go by the written FHA guidelines above for credit scores, but very few. Your best bet is to get with a loan officer and get your scores up to at least 580 so you can have a better shot of getting approved and access to more FHA lenders.

Be aware there are a lot of credit scores out there, but each lender must pull their own credit report and credit scores to determine your creditworthiness. I would shop around first to see what the requirements are for each FHA lender before they pulled your credit report.

Mortgage lenders use the FICO score model below for each credit bureau when they look at your credit scores.

MyFICO is now selling additional score versions to the public.  These include three scores most often used by mortgage lenders:

• Experian FICO Score 2  (also known as EX-98 or Risk Model v2)
• Transunion FICO Score 4  (also known as TU-04 or Transunion FICO Risk Score Classic 04)
• Equifax FICO Score 5  (also known as EQ-04 or Beacon 5).  

Bankruptcy Requirements for Kentucky FHA Home Loans:

FHA states in their published guidelines that if you had a Chapter 7 Bankruptcy, you must wait 2 years from the discharge date to reapply for a FHA insured mortgage loan. 

If you had a Chapter 13 Bankruptcy and have a 12 month on-time payment history with the courts, you can potentially get approved for a FHA loan if you get permission from the trustee and qualify with the Chapter 13 payment plan in your debt to income ratio. If you have been in the plan for over 12 months, and have a good pay history, you can submit your paperwork for FHA approval. 

For example, let's say you have been in the Chapter 13 repayment plan for 3 years and you want to buy a home using FHA financing. You could go ahead and petition the Chapter 13 trustee for approval from the courts to get a home loan. The trustee of the Chapter 13 courts will want to know your new loan payment with the home loan, so make sure you know how much  you want to borrow before you apply ,. 

Collections on Credit Report Requirements for Kentucky FHA Home Loans:

: 

• If the credit report shows a cumulative balance of $2,000 or more for collection accounts: 
• The debt(s) must be paid in full prior to or at closing, or 
• Payment arrangements must be made with the creditor and the monthly payment included in the DTI, or 
• A monthly payment of 5% of the outstanding balances of each collection must be included in the borrower’s DTI. 
• Collection accounts of non-borrowing spouses 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. Community property states are Arizona, California, Texas, Washington, and Wisconsin
• Medical collections and charge offs are excluded from this
  guidance.B. Judgments – Loans for borrowers with outstanding judgments are
  generally not acceptable unless the following documentation is obtained.
  a. Judgment must be on the credit report that is linked to the TOTAL
  Scorecard findings and the findings must be “approve/eligible” or
  “accept/accept.”
  b. If the judgment will not be paid off and released prior to the
  closing, evidence of a payment agreement may be considered. The
  payment agreement must be in writing and provided at the time of
  underwriting. Crescent will require evidence that 12 months
  satisfactory payments have been made as scheduled. Borrowers
  may not pre-pay scheduled payments in order to meet this
  requirement. The monthly payment must be considered in the
  borrower’s debt-to-income ratio for qualifying.
  c. Any judgments that are discovered in the processing of the loan
  that ARE NOT on the credit report linked to the TOTAL findings
  require the loan to be manually downgraded to “refer” status.
  Crescent does not approve loans that must be manually
  downgraded.
  d. A subordination agreement will be required for any judgment that
  is also a lien against the borrower and/or the subject property.
  C. Disputed Accounts – Because disputed accounts are not generally
  considered in the borrower’s credit report FHA will now require loans of
  borrowers who have derogatory disputed accounts with cumulative
  balances of $1000 or more (excluding medical) to be downgraded to
  “refer” findings and manually underwritten. As you are aware, Crescent
  does not approve loans that require manual underwriting.
  NOTE 1: Disputed derogatory credit account of a non-purchasing spouse
  in a community property state are not included in the cumulative balance
  for purposes of determining if the mortgage application must be
  downgraded to a “refer.”
  NOTE 2: Disputed medical collections are excluded from the $1000 limit
  as are derogatory credit accounts resulting from identity theft, credit theft
  unauthorized use, etc. However, documentation must be provided to
  conclusively support the disputed status. Documentation might entail
  police reports, letters from the creditor, etc.
  II. ML 2013-26 – Back to Work-Extenuating Circumstances
  The guidance provided in ML 13-26 requires loans to be manually
  underwritten. For this reason Crescent cannot approve loans that need these
  credit underwriting leniencies. III. ML 2013-29 – Application of Unused Funds from

Short-sale or Foreclosure Guidelines for a Kentucky FHA Loan:

If you have experienced a short-sale or foreclosure, FHA states that you must wait 3 years from the date of the sale to obtain FHA financing again. And important note is this: The waiting period starts not when you were discharged from the home or bankruptcy, the waiting period starts when the home is sold and the deed transferred at the courthouse. 

This is important to remember because a lot of people think it starts when they vacate the home or when there bankruptcy is discharged if the mortgage was in the bankruptcy, but it does not!!! The date used to end the waiting period starts when the deed is transferred at the courthouse from the owner to back to bank or whomever buys the home in the default. 

Delinquent Federal Debt (Taxes, Student Loans) Kentucky FHA Loan Requirements:

If you have a delinquency with the Federal Government, this could hurt your chances of getting approved for a FHA backed Mortgage Loan. Here is why:

All FHA participants are ran through the CAVIRS Alert System administered by HUD to check to see if the mortgage applicant is delinquent  to the Federal Government. This usually arises from an IRS income tax lien, over-payment on a social security claim, or lastly, a defaulted student loan. 

A lot of the times FHA borrower don't realize that if they don't pay there Federal backed student loans, they go into default and this will hold you up from getting a FHA loan or possibly they will hold your tax refund. 

If you have been delinquent on your student loans, you have to call and get on a 9 month repayment plan with them and they will clear you of your CAVIRS Alert. The payment plan can be as little as 5 or $10 a month, but the important thing is to get started so this will improve your credit rating too along with releasing the liens against you for other federal assistance like tax refunds, social security payments and benefits to name just a few. 

I have done many FHA loans in Kentucky where they have rehabbed their Student loans if they are backed by Federal government and got them loan after 9 months. 

If you happen to have an agreement already worked-out with the IRS or student loan creditors, sometimes we can take that arrangement and get you approved sometime with FHA depending on the lender. 

Child Support Obligations Kentucky FHA Loan Requirements:

If the credit report shows a delinquent child support agreement, the FHA Government Underwriter will want to see the current child support agreement and what the monthly payment is so as to make sure they have your debt to income ratio figured correctly. You can have a delinquency report of child support on your credit report and still get an FHA loan. 

 It is okay to be paying child support ,a lot of times it shows on a borrower's pay stubs, and if so, we simply use that child support obligation to use for debt to income ratio qualifying. 

As you can see, it is quite possible to buy a home in Kentucky with past bad credit. I work with a lot of mortgage applicants that has experienced credit issues in the past, but with the right direction and guidance, I can possibly get you into a home in 2020. 

Put my 20 years of Kentucky Mortgage Experience to work for you . 

Joel Lobb (NMLS#57916)
Senior  Loan Officer

American Mortgage Solutions, Inc.

10602 Timberwood Circle Suite 3

Louisville, KY 40223

Company ID #1364 | MB73346

Text/call 502-905-3708
kentuckyloan@gmail.com

Labels: bad credit, Bankruptcy, child support, collections, credit, Credit Score, credit score and bankruptcy, Disputed Accounts, Fico Score, foreclosure, Judgements, kentucky mortgage bad credit, student loans

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916 http://www.nmlsconsumeraccess.org/

-- Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.

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Louisville Kentucky Mortgage Broker Offering FHA, VA, USDA, Conventional, and KHC Zero Down Payment Home Loans | October 9, 2018 at 3:33 pm | Tags: deeds-in-lieu of foreclosure, fha foreclosure, fha mortgage, Foreclosure, foreclosure hud ky, foreclosures, housing, kentucky fha mortgage, Short Sale or Deed-in-Lieu | Categories: foreclosure, HUD Foreclosure, KY FHA LOANS | URL: https://wp.me/p1gxai-3iE

How do Judgements affect a Kentucky Mortgage Loan Approval?

Judgments and how they affect a Kentucky Mortgage Loan Approval.

Judgements are treated differently than collections when it comes to a mortgage loan approval in Kentucky. 

• All judgments must be paid off prior to the loan closing unless there is a written agreement for a payment plan.
• In order to accept a payment plan for a judgment, the written agreement must be provided along with evidence that at least 3 payments have been made and that all payments have been made on time.
• Any payment plan for a judgment must have its monthly payment include in the DTI calculation.
• Judgments of a Non-Purchasing Spouse in a community property state must be included, unless excluded by state of Kentucky 

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-- 

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

 phone: (502) 905-3708

 Fax:     (502) 327-9119

kentuckyloan@gmail.com

 Company ID #1364 | MB73346

http://mylouisvillekentuckymortgage.com/

Minimum Credit Scores on FHA Mortgage Loans

Minimum Credit Scores on FHA Mortgage Loans

What is the Minimum Credit Score for FHA Mortgage Loan?

Credit scores can determine whеthеr оr nоt hоmе buyers саn qualify fоr specific mortgage loan programs. TheFHA mortgage program hаs а muсh lower credit score requirement thаn conventional loan programs аvаіlаblе thrоugh Fannie Mae аnd Freddie Mac. Before getting yourself into bad credit mortgages from subprime lenders, consider borrowing with FHA. Most people do not realize that the Federal Housing Administration continues to approve home loans from borrowers with fico scores as low as 500. The FHA minimum credit score is not that simple though so continue reading and we will break it down for you.

Do уоu nееd а Minimum Credit Score іn order tо gеt аn FHA Home Loan?

The FHA loan program dоеs nоt officially hаvе minimum credit scores. Тhе final decision аs tо a minimum credit score fоr FHA loans іs left uр tо thе mortgage lenders whо mаkе thеsе loans usіng thе FHA program. Ноmе buyers саn find three types оf FHA loan companies offering these government home loans today:

1.         Minimum 640 Credit Score Lenders. Моst mortgage lenders nоw require а minimum 640 credit score аlоng wіth аn automated underwriting approval frоm thе FHA underwriting system іn order tо qualify fоr FHA home financing. (Total Mortgage іs оnе оf thеsе lenders.) Іf уоu hаvе а credit score аbоvе 640 but bеlоw 700 thеn thіs іs уоur оnlу option. Іf уоu hаvе а credit score аbоvе 700 аnd аrе making а dоwn payment оf lеss thаn 20%, уоu mау qualify fоr а conventional Fannie Mae/Freddie Mac loan but thе monthly private mortgage insurance costs will bе muсh higher thаn thrоugh thе FHA program.

2.         Minimum 600 Credit Score Lenders. Тhеrе аrе а select fеwFHA lenders whо will approve FHA loans whеrе borrowers hаvе а credit score оf 600 оr higher. Ноwеvеr, borrowers must bе squeaky clean tо qualify fоr thеsе loans аnd аlsо must hаvе аn automated underwriting approval аs well. Borrowers wіth а credit score bеtwееn 600 аnd 640 аrе advised tо work closely wіth thеіr loan officer tо help gеt thеіr loan approved.

3.         Minimum 500 Credit Score Lenders. Ноmе buyers whо hаvе credit scores bеlоw 600 mау stіll hаvе аn opportunity tо buy а hоmе bу finding оnе оf thе fеw FHA mortgage lenders whо manual underwrite thеіr loans. Вut hоmе buyers beware: nоt оnlу аrе thеsе loans mоrе expensive thаn standard FHA loans (уоu will рrоbаblу gеt а rate аbоut оnе half tо оn full percentage point higher), gеttіng approved іs nоt thаt easy. Тhе FHA program іs nоt thе sub-prime loan program оf sеvеrаl years ago. Аnd еvеn thоugh lower credit scores аrе accepted, thаt dоеs nоt mеаn thаt bad credit іs acceptable. Fоr example, а borrower wіth а poor credit history whо hаs paid thеіr debts аnd іs lооkіng fоr а fresh start іs а candidate fоr thіs type оf FHA mortgage loan. А borrower whо hаs multiple outstanding unpaid charge-offs іs lеss lіkеlу tо gеt аn approval.

Credit score requirements fоr thе FHA program wеrе nоt lowered bу FHA mortgage lenders. Іnstеаd, Fannie Mae аnd Freddie Mac аlоng wіth private mortgage insurance companies increased thеіr minimum credit score requirements fоr hоmе purchase loans wіth dоwn payments оf lеss thаn 20%. Fоr mаnу low dоwn payment options, thе mortgage insurance companies hаvе јust canceled writing coverage completely.

If уоur credit score іs bеlоw 600, уоur best bet іs tо trу tо address thе credit issues thаt аrе dragging уоu dоwn bеfоrе trуіng tо buy а hоmе. Аlsо, іf thеrе аrе errors bringing dоwn уоur credit score, уоu саn work wіth а reputable credit repair company tо fіх thеsе problems. Тhе cost оfcredit repair hаs соmе dоwn dramatically wіth newer technology, аnd thе turnaround time tо fіх credit items hаs decreased frоm months years ago tо а couple weeks today.

FHA just requires a 500 credit score, but with less than a 580 credit score a 10% down payment is required, with a 580+ score then just 3.5% can be put down. The difference with Wells Fargo is that they require anyone with less than a 600 score to put 10% down though - including other limitations (such as the down payment must come from your own funds, not a gift from family/relatives, lower debt ratio limits, and need to have cleaner credit history for a longer period of time). 

Other than medical collection accounts, for FHA financing you'll need to have 12 months where no new collections have occurred, and some lenders are looking for up to 24 months. FHA doesn't have a defined time guideline on collection accounts, other than: 

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr… 

"The lender must document the analysis of delinquent accounts, including whether late payments were based on 

a disregard for financial obligations 
an inability to manage debt, or 
factors beyond the borrower's control, such as 
delayed mail delivery, or 
disputes with creditors. 

Minor derogatory information occurring two or more years in the past does not require an explanation. Major indications of derogatory credit, such as judgments, collections, and other recent credit problems, require sufficient written explanation from the borrower. The explanation must make sense, and be consistent with other credit information in the file." 

However lenders generally abide by the 12-24 month time frame for no new collections. If there is a repeated pattern of collections, expect it to be closer to the 24 month mark... if the collections were the first time in your credit history you've had issues, and those issues have resolved themselves, 12 months may be more acceptable. 

If you have unpaid collections, FHA does not require them to be paid (that goes for charge-offs with balances too), however each lender may impose their own guideline on when collections have to be paid (those guidelines are called "overlays") and some will require collections within X amount of time to be paid, or collections over X amount in total amount owed, or non-medical collections to be paid, etc. so it's good to ask about a lender's specific unpaid collection policy when determining if you want to proceed with a loan application with them. 

Other FHA information on collection accounts: 
"Collections and Judgments"http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr… 
"Paying off Collections and Judgments"http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr…

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

American Mortgage Solutions, Inc.

10602 Timberwood Circle, Suite 3

Louisville, KY 40223

text or call my phone: (502) 905-3708
email me at kentuckyloan@gmail.com

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). Mortgage loans only offered in Kentucky.

All loans and lines are subject to credit approval, verification, and collateral evaluation and are originated by lender. Products and interest rates are subject to change without notice. Manufactured and mobile homes are not eligible as collateral

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