HUD Charge-Off Guidelines: GCA Forums

This guide covers HUD charge-off guidelines on FHA loans. Many homebuyers believe that all banks and lenders have the same HUD charge-off guidelines on FHA loans. Not all lenders have the same HUD guidelines on FHA home loans. All lenders need to meet the minimum HUD agency guidelines on FHA loans. However, lenders can have higher lending requirements that is above and beyond the minimum HUD charge-off guidelines on FHA loans. This is why lenders have different lending requirements on FHA loans. One lender may require borrowers to pay outstanding collections and charge offs and another lender may not. HUD charge-off guidelines state that a borrower does not need to pay off or settle a charge off account to qualify for FHA loans. Gustan Cho Associates is one of the very few national mortgage companies that has no lender overlays on FHA loans.

HUD Charge-Off Guidelines on FHA Home Loans

Per HUD charge-off guidelines on FHA loans, there are no limits on how high the charge off account is for the borrower to qualify for an FHA loan. The United States Housing and Urban Development, known by most of us as HUD, is the parent of the Federal Housing Administration, known as FHA. HUD is a government organization that sets the HUD guidelines. One of HUD’s mission is to promote homeownership in the United States. HUD sets the mortgage lending guidelines for FHA loans.

What is the Role of FHA

The Federal Housing Administration is a government agency under the U.S. Department of Housing and Urban Development. FHA is not a lender nor does originate, fund, or service FHA loans. HUD is a government agency that acts as an insurer for banks and/or mortgage lenders that originate and fund FHA loans. FHA insures lenders in the event the borrower defaults on their FHA Loan and the property goes into foreclosure. Lenders originate and fund FHA loans with little down payment and loose credit requirements. Due to HUD promoting homeownership and the guarantee HUD offers, lenders are able to offer low down payment home loans at low mortgage rates. FHA realizes that many hard-working Americans had at one time or another gone through financial hardship. FHA is very understanding in giving people second chances. Speak With Our Loan Officer for FHA Loan

Qualifying For FHA Home Loans After Bankruptcy

Homebuyers can qualify for FHA Home Loans after bankruptcy. However, there are mandatory waiting period requirements. The philosophy under FHA’s eyes is that people deserve a second chance to have the opportunity to become home owners after the following:

Chapter 7 Bankruptcy

There is a two year waiting period after a Chapter 7 Bankruptcy Discharge Date to qualify for an FHA Loan

Chapter 13 Bankruptcy

Borrowers can qualify one year into a Chapter 13 Bankruptcy Repayment Plan
Need to have made 12 timely payments to their creditors
Need approval with their Chapter 13 Bankruptcy Trustee
There is no waiting period after Chapter 13 Bankruptcy Discharged Date to Qualify For FHA Loan
But needs to be a manual underwrite if the Chapter 13 Bankruptcy Discharged Date has not been seasoned for at least 2 years

Qualifying For FHA Loans After a Housing Event

Home buyers can qualify for FHA Loans after housing event after meeting mandatory waiting period requirements:

Foreclosure

There is a three waiting period from the recorded date of foreclosure or the date of the sheriff’s sale to qualify for an FHA mortgage loan.

Deed-in-Lieu of Foreclosure

There is a three year waiting period from the recorded date of a deed-in-lieu of foreclosure to qualify for an FHA loan.

Short Sale

There is a three year waiting period from the short sale date of the property which is reflected on the closing statement of the short sale to qualify for an FHA loan.

FHA Loans With Bad Credit

Homebuyers with bad credit can qualify for FHA loans. HUD, the parent of FHA, is very forgiving with borrower who had prior bad credit including late payments. However, in order to get approve/eligible per Automated Underwriting System approval, timely payments in the past 12 months are often required. Click here to qualify for a FHA loan with Bad Credit. AUS will approve with one or two late payments in the past 12 months:

Periods of Bad Credit

FHA understands borrowers having periods of bad credit and/or derogatory credit but FHA wants borrowers to have re-established credit and timely payment history for past 12 months

Unpaid Collection Accounts

Borrowers do not have to pay off outstanding unpaid collection accounts to qualify for an FHA Loan

Charge Off Accounts

HUD Charge-Off Guidelines state that borrowers do not have to pay any outstanding charge off accounts to qualify for an FHA loan.

Qualifying For FHA Loans With Judgment And Tax Liens

HUD allows for borrowers with qualify for FHA Loans with outstanding judgments and tax liens with written payment agreements:

Tax Liens

FHA Allows borrowers to qualify for an FHA loan without having to pay off tax liens.
However, a written payment agreement is required and three month’s of canceled checks and payments are required.
Borrowers cannot pre-pay the three months payments upfront once they get a written payment agreement.
Three months payments need to be seasoned for the three months.

Judgments

HUD allows you to qualify for FHA Loan with outstanding judgment without having it to be paid in full.
Need written payment agreement with the judgment creditor.
Need three months of canceled checks.
As with tax liens, borrowers cannot pre-pay the three months payment upfront once they execute a written payment agreement.
Three months seasoning is required.

FHA Home Loans With Bad Credit

Other Credit And Financial Issues Due To Extenuating Circumstances:

FHA is fairly lenient with regards to qualifying for an FHA loan.
If the borrower cannot get an approve/eligible per Automated Underwriting System, most FHA Lenders can downgrade FHA loan. Application to a manual underwriting.
All manual underwrites require 12 months timely payment.
All manual underwriting requires verification of rent.

FHA does not require borrowers to pay off outstanding collection accounts or charge off accounts to qualify for a 3.5% down payment home purchase home under FHA Charge Off Guidelines and outstanding Collections Guidelines. FHA Loans are the best loan program for borrowers who have had prior bad credit.

Updated HUD Charge-Off Guidelines To Qualify For FHA Loans

Why is it that many borrowers consult with loan officers at various lending institutions and are told that they do not qualify for a FHA Loan because they have outstanding unpaid collection accounts? Here are some of the answers many borrowers with outstanding collection accounts get when they visit loan officers at banks and mortgage lenders:

Borrowers cannot qualify for an FHA loan if with outstanding unpaid collection accounts..
Borrowers are told by lenders with overlays to pay off collection accounts and need to wait until it reflects on the credit report
Some banks have overlays where they require to have collection account paid in full and seasoned for two years.
Other lenders have lender overlays where the maximum amount of total collection account balance borrowers can have on the credit report is not to be greater than $5,000.

All of the above answers from loan officers at banks and lending institutions are not HUD Guidelines BUT are their own FHA lender overlays. Homebuyers can qualify for FHA loans with outstanding collections and charge offs per HUD charge-off guidelines to qualify for FHA loans. Gustan Cho Associates is a national mortgage company licensed in multiple states with no overlays on FHA loans. Qualify for FHA Loan with Gustan Cho Assoicates

HUD Charge-Off Guidelines To Qualify For FHA Loans: What Are Overlays?

A mortgage lender does not need to approve borrowers for FHA Loans even though borrowers may meet all FHA Guidelines under HUD 4000.1 FHA Handbook. A lender may set higher lending requirements that is above and beyond of those of the minimum HUD Agency Mortgage Guidelines. Most lenders have overlays. However, Gustan Cho Associates has no overlays.

HUD Charge-Off Guidelines To Qualify For FHA Loans versus Overlays

These additional higher lending requirements are called lender overlays:These additional mortgage lending requirements that are above and beyond HUD mortgage lending guidelines are called FHA lender overlays. HUD charge-off guidelines state that borrowers do not have to pay off any charged off collection accounts no matter how large the charge off account balance is.

Many mortgage lenders have FHA lender overlays on charge off collection accounts. Lenders with overlays will require charge off accounts to be paid off in order for borrowers to qualify for an FHA loan.

Other lenders will have caps on charge-off accounts. For example, many banks and smaller sized mortgage bankers will have requirements that borrowers can have a charge-off collection accounts up to $5,000 maximum to qualify for an FHA loan.

Lenders With No Overlays on HUD Charge-Off Guidelines on FHA Loans

Home Buyers and/or Homeowners who need to qualify for home loans with a national mortgage company licensed in multiple states with zero lender overlays on government and conventional loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. You do not have to pay off outstanding charge off collection accounts to qualify for an FHA Loan. Click here to apply for FHA Loan with lender with no overlays

This BLOG On HUD Charge-Off Guidelines on FHA Loans Was UPDATED on May 22nd, 2024.