Fannie Mae Collection Account Guidelines on Conventional Loans

This guide covers Fannie Mae collection account guidelines versus HUD agency guidelines. Fannie Mae collection account guidelines on owner-occupant homes is similar to HUD guidelines on collections accounts.  Fannie Mae and Freddie Mac is in charge of setting up mortgage rules and guidelines for conventional loans. Conventional loans are called conforming loans. This is because they need to conform to Fannie Mae and/or Freddie Mac Mortgage Guidelines. HUD, the United States Department of Housing and Urban Development, which is the parent of the Federal Housing Administration or FHA, is in charge of setting up the mortgage requirements and guidelines for FHA loans.

Every mortgage program has lending guidelines on collection accounts and how a borrower will qualify for a home loan with outstanding collection accounts, past-due credit accounts, and charge-off accounts. Fannie Mae collection account guidelines differ from those of HUD guidelines on collection accounts. Fannie Mae collection account guidelines are more strict on the qualification requirements for conventional versus FHA loans. In this article, we will discuss and cover Fannie Mae collection account guidelines versus FHA.

Fannie Mae Collection Account Guidelines on Conventional Loan Requirements

To qualify for conventional loans, borrowers need to follow the standards and lending guidelines set by the two mortgage giants, Fannie Mae and Freddie Mac.

• Conventional loans are called conforming loans because they need to conform to lending standards of Fannie Mae or Freddie Mac
• Minimum credit scores required to qualify for conventional loans are 620.
• There is a four-year mandatory waiting period to qualify for a conventional loan after a Chapter 7 bankruptcy discharge date
• There is a two-year mandatory waiting period to qualify for a conventional loan after a Chapter 13 Bankruptcy discharge date
• There is a four-year waiting period to qualify for a conventional loan after a deed in lieu of foreclosure and/or short sale
• There is a seven-year mandatory waiting period to qualify for a conventional loan after a foreclosure
• For deeds in lieu of foreclosure and foreclosure, the waiting period time clock starts from the recorded date of the deed in lieu or foreclosure
• Not the date when the keys were turned in to the bank or mortgage lender

Fannie Mae Collection Account Guidelines on Credit Payment History on Credit Report

Just because borrowers have a minimum credit score of 620 does not mean that the borrower will qualify for a conventional loan. Conventional lenders will also look at the borrower’s credit report and look for timely payment history, especially for the past 12 months. Most lenders will not approve borrowers who had any late payment history after a bankruptcy or foreclosure

Those who have late payments that are not in collections—all of the late payments need to be current in order for them to qualify for a conventional loan. For example, if the borrower has a creditor who he or she has not paid for the past six months and that account is not in collections, the borrower needs to get all of the past due payments current in order to qualify for conventional loans.

Fannie Mae Collection Account Guidelines on Outstanding Collection Accounts 

Borrowers do not have to pay off any outstanding collection accounts and/or charge off accounts if they are purchasing a one-unit primary owner-occupant home. This holds true regardless of the outstanding collection account balance and/or charge-off account balance.

• Borrowers who are purchasing two to four-unit owner-occupied primary residential properties and/or second home properties must pay off any outstanding collection accounts and/or charge off accounts if the outstanding balance is $5,000 or greater at or prior to closing of their home
• This guideline does not apply on FHA loans
• Borrowers who are purchasing investment properties must pay off individual collection accounts and/or charge off accounts that are equal or greater than $250
• Collection accounts that total more than $1,000 need to be paid in full on conventional investment property loans

This needs to be paid off at or prior to the closing of their home loan.

Fannie Mae Collection Account Guidelines on Bad Credit

Conventional loans have higher credit and lending standards than FHA loans.

• The maximum debt-to-income ratio requirements on Conventional Loans are capped at 45% DTI and up to 50 debt-to-income ratio with compensating factors.
• Whereas with FHA loans, the debt-to-income ratios can go up as high as 46,9% front-end 56.9% back=end DTI.
• Borrowers with 20% down payment and/or 700 credit scores can qualify for Conventional loans with up to 50%.
• Minimum credit scores to qualify for FHA loans is 580 credit scores for a 3.5% down payment home purchase home loan.
• Borrowers with credit scores under 580 and down to 500 FICO are eligible for FHA loans with a 10% down payment.
• However, need a minimum credit score of 620 to qualify for Conventional loans.
• The waiting period to qualify for FHA loans after Chapter 7 Bankruptcy is a 2-year waiting period after the Chapter 7 bankruptcy discharge date.
• There is a four-year mandatory waiting period to qualify for a Conventional loan after a Chapter 7 Bankruptcy discharge date.
• Borrowers can qualify and get pre-approved for an FHA loan during Chapter 13 bankruptcy after one year of filing Chapter 13 bankruptcy with 12 timely payments and trustee approval.
• There is no mandatory waiting period to qualify for an FHA loan after a Chapter 13 bankruptcy discharge date.

Conventional Loan After Bankruptcy Guidelines

There is a two-year mandatory waiting period to qualify for a conventional loan after a Chapter 13 bankruptcy discharge date. There is a three-year waiting period to qualify for an FHA loan after a foreclosure, deed in lieu of foreclosure, or short sale. With conventional loans, there is a four-year mandatory waiting period to qualify for a conventional loan after a deed in lieu of foreclosure or short sale. There is a 7-year mandatory waiting period to qualify for a conventional loan after the recorded date or sheriff’s sale date of a foreclosure. Most mortgage lenders do not want to see any late payments or derogatory credit after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. They want to see re-established credit and no late payments. However, there are extenuating circumstances, and late payments and derogatory credit can happen, so this will not be a deal-killer, but a good letter of explanation will be required.

Fannie Mae Collection Account Guidelines on Mortgage Part of Bankruptcy

Borrowers with a prior mortgage part of your Chapter 7 bankruptcy have a four-year waiting period from the discharged date of Chapter 7 bankruptcy. The recorded date of the final sheriff’s sale or foreclosure does not matter. However, the foreclosure needs to have been finalized. The waiting period will be four years from the Chapter 7 bankruptcy discharge date, although the final foreclosure date can be at a later date. Borrowers cannot have reaffirmed the mortgage. Homebuyers or homeowners who are looking for a conventional mortgage lender who has no lender overlays, please contact us at GCA Forums Mortgage Group at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. GCA Forums Mortgage Group has zero lender overlays on government and conventional loans. The team at GCA Forums Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

FAQ’s on Fannie Mae Collection Account Guidelines on Conventional Loans

Fannie Mae Collection Account Guidelines For Conventional Loans (2025 Edition) FAQ

As one of the largest GSEs in the US, Fannie Mae has its own guidelines on collection accounts regarding single family loans. If you have or have not paid collections, you probably asked yourself how it affects my mortgage approval. This manual answers the most recurrent inquiries regarding collection accounts and what borrowers must realize in 2025.

What Are Collection Accounts and How Do They Affect Conventional Loans?

A collection account shows on a credit report when a payment is overdue, and that account has been forwarded to a collections agency. The debt in these accounts will negatively affect your credit score which in turn will affect your chances of qualifying for a mortgage.

Fannie Mae Has Set Criteria for Deciding Collection Accounts for Conventional Loans

• Aggregate balance
• The period the collection account has existed
• Classification of the collection as medical or non-medical
• Effect on debt-to-income (DTI) ratio

Does Fannie Mae Collection Account Guidelines Require Collection Accounts to Be Paid Off?

No, Fannie Mae does NOT require all collection accounts to be paid off for a borrower to qualify for a conventional loan.

Exceptions:

• Lenders may need some sort of explanation if the total unpaid collections exceed $2,000.
• If a certain collection determines whether the borrower qualifies (high DTI, for example), it might need to be worked on.
• All judgements and liens must be taken care of prior to closing.
• Medical collections are normally not included when considering approval of the loan.

What Are the Fannie Mae Collection Account Guidelines Thresholds for Conventional Loans?

Fannie Mae has different guidelines depending on the value of non-medical collections:

Fannie Mae Collection Account Guidelines

• Total collection balance | Action required
• Under $2,000 | Not applicable
• $2,000-$5,000 | Some explanation may be needed but not payment
• Over $5,000 | Proof of payment plan, payment, or payoff may be required
• Medical collections are usually disregarded when determining total balances.

How Do Medical Collections Affect Conventional Loan Approvals per Fannie Mae Collection Account Guidelines?

Unlike other collection accounts, medical accounts are treated with a different set of rules.

• Fannie Mae does not include medical collections in the calculations.
• Lenders might disregard medical collections when determining DTI ratios or assessing financial risk.
• High impact medical collections usually do not affect approval of the loan.
• If there are medical collections with a certain lender, they might still require a Letter of Explanation (LOE) to show that the debt was either in dispute or not intended to be owed to the lender.

Per Fannie Mae Collection Account Guidelines: Is It Required To Pay Off Charge Off Accounts For Conventional Loans?

Charge off accounts are accounts which the creditor has written off completely as a loss and does not expect to get back, however the creditor may still try to recover the amount. Fannie Mae does NOT require charge off accounts to be paid off.

• If a charge off account results in a judgement or tax lien or wage garnishment, that is the only time where it must be settled before closure.
• These charges will still affect the fomost credit score, which can affect these things.
• Having multiple charge offs for a reason such as credit card debt usually results to lenders requesting for an explanation letter with sufficient details supporting the request.

Collection Accounts And The Effect On Debt To Income Ratio (DTI)

Fannie Mae’s rules of collection accounts cap cvoluntarily impacted DTI ratio:

• Unpaid collection over balances of $5,000: lenders are allowed to add an unpaid collection balance which may hypothetically be set at five percent of the total.
• Medical collections: generally excluded from DTI.
• For a charge off, it may not be included in DTI at all unless they changed into a judgement, lien, or wage garnishment.
• If you have unpaid collections worth $6,000, the lender could increase your DTI ratio by $300 per month, which is 5% of the 6,000, without you having to make any payments toward it.

Fannie Mae Collection Account Guidelines: Can You Get a Conventional Loan with Collections?

• Yes, you can get a Fannie Mae conventional loan even with collection accounts.
• However, what determines your approval is.
• Your Credit Score: If you have a higher credit score, it would help mitigate the possitive impact of collections.
• DTI Ratio: Ensuring that your DTI ratio does not exceed 45% increases the chances of approval.
• Down Payment: A more substantial down payment such as 10-20% can further support your application.
• Loan-to-Value (LTV) Ratio: If you have lower LTV ratios, that is, if you put more money down, that will be helpful too.
• Old collections over two years may be less impactful towards approval.

Should You Pay Off Collections Before Applying for a Mortgage?

It depends. Sometimes paying off collections can be detrimental to the credit score because it changes the timeline for the last activity on the account to a more recent date.

Fannie Mae Collection Account Guidelines: When to Pay Off Collections

If the lender stipulates it for approval. \nIf it’s a judgment or tax lien, (Needs to be cleared). \nIf the debt is newer and has a drastic impact on the credit score.

Fannie Mae Collection Account Guidelines: When NOT Paying Off Collections

• If the lender does not require the account to be paid off and the balance is old.
• If the debt is related to medical bills.
• If paying the collection balance would lower your FICO score before applying for a mortgage.
• Consult a lender before attempting to pay off a collection so that you do not inadvertently drop your score.

What If You Dispute a Collection Account?

You accordingly have the right to dispute an account if you think it is inaccurate. But do remember that Fannie Mae requires all disputed accounts to be settled before granting the loan.

• In the case of valid disputes, ask for the credit report to be wiped clean.
• With ongoing disputes, some lenders put a hold on the loan approval until it is resolved.
• Collectively unpaid Judgments and liens must be settled before closing.

How Do Different Lenders Handle Collection Accounts?

• Although Fannie Mae stipulates rules, it is up to individual lenders to be stricter (lender overlays).
• Certain lenders choose to dismiss all collections below $5000.
• Other lenders may mandate the clearance of all non medical collections.
• Some have even higher DTI ratios (50%) with good scores.
• Try to find a lender who has fewer overlays if one lender denies you due to collections.

HUD vs Fannie Mae Collection Account Guidelines

Fannie Mae Collection Account Guidelines Compared to HUD Guidelines

Fannie Mae Collection Account Guidelines vs Other Type of Loan Programs

• Fannie Mae (Conventional) Total collections over $5,000 may be considered in GDS calculation; most medical collections are ignored.
• FHA Loans: Total collections greater than $2,000 that are not medical must be dealt with or justified.
• VA Loans: Collection accounts are typically ignored unless they impact GDS

Fannie Mae Collection Account Guidelines: Can Collections Prevent You From Obtaining A Conventional Loan?

Yes, but collection accounts impact the applicant’s ability to obtain credit, so you need a good credit profile. Fannie Mae allows some collection accounts to remain, but some lenders can impose higher standards.

• Review your credit report for collection accounts before applying.
• Approach several lenders to find one with looser rules.
• If your collections make it hard to get approved, think about an FHA loan.

Have Questions on this guide Fannie Mae Collection Account Guidelines? Contact a mortgage advisor today at 800-900-8569. Text for a faster response. Or email us at alex@gustancho.com for guidance on what collection accounts mean for your approval!