[Bruce]

Failing to pay a medical bill that has been sent to collections can affect your FHA mortgage approval but usually does not cause an outright denial. Here’s what you need to know:

Medical Collections According to HUD Guidelines

Different Treatment: In general, HUD guidelines treat medical collections more favorably than other types of debt. They often need to include medical collections in calculating the debt-to-income (DTI) ratio. They are less likely to adversely impact your ability to get approved for an FHA loan.

Not Required To Pay Off: Unlike non-medical collections, medical collections are not required under FHA rules to be paid off before qualifying for a loan.

Effect on Credit Score

Credit Score at Risk: Your credit score could drop because bills went into collections. Even this would not hurt your chances of getting an FHA mortgage by itself if all other factors meet minimum standards set forth by lenders who follow Federal Housing Authority guidelines (usually 580+ for a 3.5% down payment). But if such a decrease brings your rating below the lender’s required minimums, then yes, they may deny it.

Overall Creditworthiness Assessed: The potential impact varies with overall credit history. A single bad mark like this might have little effect. At the same time, multiple derogatory items could raise eyebrows among those reviewing applications from potential borrowers seeking federally guaranteed home loans backed by private sector participants known collectively as Ginnie Mae or GNMA. This includes Fannie Mae (FNMA), Freddie Mac (FHLMC), and others.

Discretionary Power of Lenders

Manual Underwriting Possible: A lender could do manual underwriting if concerns arise over your credit score due to medical collection(s), even though the same falls within an acceptable range. Manual underwriting is necessary when evaluating the risk associated with extending credit. It looks at income stability, assets held, and details behind occurrences leading up to such debts originating from healthcare providers’ charges incurred by the patient(s) they treated.

Lender Overlays: Some lenders may have additional rules regarding collections or medical debt beyond what HUD generally requires. Always communicate with the lender about this subject early on in the process.

Ways to Lessen Impact

Explain Circumstances: A letter of explanation can help if recentness applies here. Especially when an unexpected emergency caused them through no fault of their own, nor could it be anticipated. This led to various medical facilities charging for services rendered, which eventually became unaffordable given the limited means available at that point, rendering such bills unpaid.

Arrange Installment Agreement: Try and work something out with collectors where you pay over time instead of a lump sum. Providing proof thereof to the underwriter will show you are serious about resolving outstanding obligations represented by the bill being discussed currently within your credit report as having gone bad due to non-payment issues while the rest remained in good standing or paid off already, thereby helping your cause greatly towards approval success being achieved ultimately.

In closing, while an unpaid medical bill sent to collections can potentially impact securing an FHA loan, there should still be nothing much to worry about once everything else looks great financially on paper. Guidelines are flexible, especially regarding this category. However, always keep talking openly and honestly with the lender to address any concerns head-on without unnecessarily prolonging the process.

Please feel free to ask more questions or seek further clarification where required!

[Bruce]

It is possible to have recent late payments removed from your credit report, but doing so can be difficult. Here are some things you can do:

Write a goodwill letter.

What it is: A goodwill letter is a written request to your creditor asking them to remove the late payment from your credit report as an act of goodwill. This tactic works best when you have a good payment history with the creditor. The late payment was caused by something out of the ordinary.

How to write it: In this letter, explain why you paid late and point out that you’ve generally been punctual about paying on time. Also, please let them know you would delete this one late-payment blot from your credit bureau records for reasons other than its inaccurate negative information. This is what requesting such an action amounts to! Be polite but honest when making this type of appeal.

Dispute The Late Payment

How to Do It: If you think there’s been an error in reporting, dispute it with the bureaus (Equifax/Experian/Transunion). The bureaus will investigate by contacting the creditor. If they can’t verify or find no record of ever having received money and say, “This never happened,” then yes, this shall disappear like magic!

How to File a Dispute: You can file a dispute online, by mail, or by phone with each bureau. Include any documentation showing payment made on time. That proves otherwise, stating that these charges are false or completely wrong.

Negotiate With Creditor

Pay for deletion: Sometimes, collectors might agree to remove dings if the remaining balance is paid off and settled. It’s more often for the latest, but it’s worth a shot anyway, right?

How to Negotiate: Call the person with power over account status directly and offer a compromise where all parties win big. Ensure the agreement gets inked first!

Wait For The Late Payment To Age

Time-Based Removal: Late payments drop off credit reports seven years after being listed as delinquent. While they continue affecting scores for that duration under current scoring models, late payments eventually won’t show afterward. Therefore, be patient. Patience does pay here, too, sometimes!

Credit Repair Services: Beware. Some might be able to do things legally, but not others; don’t get scammed, please.

Avoid Future Late Payments

Automatic Payments: Set up automated payments on your accounts so you’re never late again.

Payment Reminders: Use an app or set calendar reminders to ensure that you always remember when each payment is due from now on.

Removing recent late pay can be hard work. However, it’s possible! It depends on how far away those pesky little black marks are in time. What caused them? Were there extenuating circumstances involved? Plus, remember, if it’s successful, this will make your credit score look better. Reach back out for more info or help anytime.

[Bruce]

Here’s GCA FORUMS FACEBOOK PAGE

https://www.facebook.com/gcaforums?mibextid=ZbWKwL

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[Bruce]

Georgia is nasty, too.

[Bruce]

Nonconventional loans such as FHA, VA, and USDA can be securitized. Here’s how it works:

Securitization of Nonconventional Loans:

Securities guaranteed by the government: This means that they are either insured or guaranteed by federal agencies like FHA, VA, and USDA. These are government-backed mortgage loans pooled together and sold as mortgage-backed securities (MBS) in the secondary market.

Ginnie Mae: The Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) do not securitize non-conforming home mortgages themselves. Instead, they use Ginnie Mae to guarantee these securities for investors who purchase them from originators on an open-market basis.

Benefits of Securitization:

It enables lenders to be solvent by enabling them to sell their assets on the secondary market. This frees up capital that can then be used to create more credits. It also creates a liquid housing market.

The process helps keep rates low: The securitization process assists in spreading out the risk across many investors, hence maintaining lower interest rates for borrowers.

Process Overview:

Loan Origination: Lenders follow governmental guidelines when originating FHA, VA, or USDA Loan

Pooling of Loans Similar loans are grouped into a mortgage-backed security.

Ginnie Mae guarantees investors receive timely payments. This is because Ginnie Mae guarantees MBS.

Sale to Investors Secondary Market Purchase MBS provides lenders capital to originate more loans.

Ginnie Mae ensures liquidity within housing markets while making sure affordable financing options are available backed by these government-insured or guaranteed credits. These are commonly referred to as FHA/VA/USDA loan types. They are also nonconventional mortgages, which are often securitized through mechanisms. If you need further clarification, please let me know!

[Bruce]

What are Compensating Factors?

Compensating factors are strong borrower factors that minimize the lender’s risk. Compensating factors play an important role in manual underwriting for mortgage applicants, and mortgage underwriters have much discretion in manual underwriting.

Compensating factors are positive features of a borrower’s financial record that counterbalance higher-risk aspects in a mortgage application, such as a high debt-to-income ratio or low credit score.

Importance in Mortgage Lending:

Compensating factors can help borrowers qualify for a mortgage they may not be approved for otherwise. Some common factors include:

• Considerable Cash Reserves.
• Stable Employment History.
• Large Down Payment.
• Low Payment Shock

Lenders use these factors to allow loans that do not meet standard guidelines but ensure the borrower has additional financial strengths.

Common Compensating Factors Recognized by Mortgage Lenders:

Substantial Cash Reserves: Having saved multiple months’ worth of mortgage payments.

Large Down Payment: Contributing a higher percentage towards the purchase price lowers lender risk.

Stable Employment History: Consistent and long-term employment.

Longevity and History of Promotion: Borrowers with a history of getting consistent raises and promotions are considered compensating factors. For example, if a person went from a security guard to a police officer and were promoted to sergeant, lieutenant, captain, major, colonel, and deputy chief, this would be considered a compensating factor.

Minimal Payment Shock: The new housing payment is similar to the current one.

Residual Income: Extra money left over after all bills have been paid.

Part-Time Job Not Used As Qualified Income: If a borrower has a second job, part-time income, or other income that has been seasoned for at least 12 months and not used as qualified income, that income will be considered a compensating factor.

Low Debt Utilization: Low balances on credit accounts.

No matter how weak certain sections of their application may appear. These compensating factors can help them secure one anyway.

[Bruce]

HUD guidelines on debt-to-income ratio is 46.9% on for front-end DTI and 56.9% back-end debt-to-income ratio on automated underwriting system approved borrowers. HUD allows manual underwriting on FHA loans for borrowers who get a refer/eligible per automated underwriting system. Or high debt-to-income ratio borrowers with an approve/eligible can be down graded to a manual underwrite by the mortgage underwriter using underwriter discretion. On manual underwriting, the debt-to-income ratio is 31% front-end and 43% back-end with no compensating factor. 37% front-end and 47% back-end debt-to-income ratio with one compensating factor. 40% front-end and 50% back-end with two compensating factors. Mortgage underwriters can allow higher debt-to-income ratio than the above using underwriter discretion. Fannie Mae and Freddie Mac maximum debt-to-income ratio is 50% on conforming loans for borrowers with 700 credit scores and higher. Borrowers with under 700 credit scores, the maximum debt-to-income ratio on conventional loans is 45%. There is no front-end debt-to-income ratio on conventional loans.

[Bruce]

What is a Mortgage Loan Application?

A mortgage loan application is complete when the lender has received six pieces of information:

• The applicant’s name
• Social Security Number (SSN)
• Income
• Property address
• Estimated value of the property and loan amount

Once these are provided, the lender must deliver a Loan Estimate.

Loan Estimate (LE)

The Loan Estimate is a 3-page form explaining your mortgage’s key terms and costs.

Rules & Regulations

Lenders must provide applicants with a Loan Estimate within three business days of their application. The LE includes specifics about interest rates, monthly payments, closing costs, and possible rate changes.

Process

Submission: Submit the required information.

Loan Estimate Issuance: Delivered within three business days.

Review & Shop: Compare offers before moving forward.

This process promotes transparency and lets you understand your options before committing to anything.

[Bruce]

You were right to bring these up. The current housing market is tough for many potential buyers. Here are the points you made and what they mean:

Housing prices going up:

• Prices have doubled since 2019, which has made it much harder to afford them.
• This is not sustainable over time.

Mortgage rates being high:

• They’re at 7.5%, the highest they’ve been in a long time.
• So monthly payments are much more expensive.
• This reduces how much people can spend on houses.

Inflation being high:

• It’s eating away at what people can buy.
• Saving for a down payment is now even harder.

Homeowners insurance costs going up:

• They have increased by 500%, greatly contributing to owning a home.
• People don’t think about that when budgeting.

Property taxes increasing:

• These keep adding to what homeowners have to pay every year.
• It can hurt in places where homes are gaining value quickly.

What This Means For Home Buyers:

Affordability Crisis:

• Prices and rates have put most homes out of reach for average people.
• Compared with what we make, monthly payments on a typical house are higher than they’ve ever been

Should I wait or should I buy?:

• Buyers fear waiting too long and finding worse conditions.
• Or acting now only to see prices drop later.
• You might miss out, versus you might overpay.

The Market Is Changing Up:

• Some areas where values rose fastest are starting to cool off.
• More stuff is available than before in many parts of town.

Should I think long-term or short-term?:

• Short-term market changes aren’t a big deal if someone plans to live somewhere forever.
• But if they want in/out quickly, that’s riskier.
• Long-term buyers vs short-term buyers/investors.

Advice For Potential Home Buyers:

Assess Your Situation First Thing:

• Job stability, savings, plans.
• Rent vs buy in your area.

Don’t Overextend Yourself: Use the old 28-30% housing cost-to-income ratio. Remember, increased insurance and taxes, too.

Timing Is Key: Some experts think prices in certain cities might soon fall back down. That said, market timing is mostly luck-based.

Look At Everything: Check out what first-timer home programs you might qualify for. Consider fixer uppers/less competitive markets.

Be Ready For A Bargain: Get your financial life together so you can act on it immediately when the right place arises. This means having a good credit score and being pre-approved for a loan.

Think Long Term: If it will be your forever house, don’t worry too much about what happens today or tomorrow.

Also, consider living in them instead of treating homes like investments only.

Stay Sharp:

• Keep an eye on what houses nearby are selling for/how fast.
• Interest rates could change at any time.
• New laws could hit housing anytime, too.
• Stay woke.
• It’s worth remembering that all real estate is local.
• National trends matter, but every city and neighborhood has its happenings.
• Make sure to research where exactly you want to buy.
• Talk to people who work in those areas before deciding.

It’s hard right now, but this game will reward you if you come in correctly. It always does. Make sure whatever you’re doing makes sense based on who you are and what you want. Not because somebody told you they knew where the market was headed.