The FHA Mortgage Loan program is America’s most popular Loan program and for good reason. An FHA Mortgage Loan is more flexible and lenient than Conventional Loan products and presents less risk for the lender because it is guaranteed by the government. Having stated this fact a credit disputes during the FHA mortgage Loan qualification application will halt the process. NOTE, credit disputes during the FHA mortgage loan qualification may not necessarily kill the deal but it will stop the qualifying process and delay your home purchase. According to 2016 FHA guidelines pertaining to credit disputes during the FHA mortgage loan qualification, non-medical collection accounts with an outstanding balance of $2000.00 or more must be retracted prior to the FHA Mortgage qualification/application process. A FHA insured loan some of the most lenient and lax mortgage lending guidelines. I mentioned earlier FHA Loans are America’s most popular loan program, they have much higher debt to income ratios, they do not require borrowers to pay off unpaid debt collections or unpaid charge offs to qualify for a FHA mortgage loan. There are FHA policies and guidelines regarding Credit Disputes during FHA mortgage loan qualification pertaining to credit disputes. All policies and guidelines must be complied with for FHA to guarantee any mortgage loan issued. If they are not complied with fully then FHA will not insure the mortgage loan.
FHA has defined guidelines regarding Credit Disputes and FHA Guidelines exempts certain types of disputes. FHA will allow an applicant to have credit disputes on medical collection accounts with outstanding balances. An applicant may also have credit disputes on zero balance non-medical accounts. Concerning non-medical collection accounts FHA guidelines will allow an applicant to have a credit dispute provided the non-medical outstanding collection balances is under $1,000.00. The total of all non-medical outstanding balances on your consumer credit report does not exceed $1,000 a credit dispute is allowed and does not have to be retracted. Medical collections and charge off accounts are treated differently according to FHA guidelines and are excluded from debt to income calculations, but,,, a borrower may not have any credit disputes on charge off accounts. If there are any credit disputes on charge off accounts this must be retracted for the Mortgage application process to continue. Although FHA will not require a borrower to pay off outstanding collection accounts and medical collection accounts and charge off accounts are exempt from debt to income calculation provided the outstanding balances are not more than $2000.00. If a borrower does have unpaid non-medical collections in excess of $2,000.00 on their credit report, FHA requires that 5% of outstanding debt be used in debt to income ratio calculations. This doesn’t mean you will have to pay this amount monthly or ever but it is required all mortgage underwriters consider 5% of the unpaid outstanding collection balances on non-medical collection accounts as a monthly paper debt to be used in debt to income ratios.
We have discussed Credit Disputes during the FHA Mortgage loan qualification, and detailed non-medical and medical collection accounts. Mortgage Loan Originators such as myself should always have a check and balance system to avoid rushed judgements and overpromising a product. For myself at The Larry Stepp Team at Gustan Cho Associates we rely on a Team of people to check our work prior to issuing something as simple as a pre-approval letter to home buyers. The pre-approval is the beginning of the process and possibly the most important stage of the Mortgage Application qualifying process. If a pre-approval letter is issued prior to reviewing two years tax returns, two years W-2’s, 30 days paycheck stubs, credit scores and credit report this can create a lot of havoc for the home buyers and the home sellers, not to mention the Realtor’s and the false hopes a poorly provided pre-approval letter creates. Mortgage Loan Originators should not take the borrower’s word based on their income and pull their credit and look at the credit score and see if they meet minimum credit score requirements to qualify for a FHA Mortgage loan, or any mortgage loan for that matter. A Mortgage Loan Originator should also review the pay history and look for credit disputes that may need to be retracted, this can be done prior to issuing a pre-approval letter. Starting any required credit dispute retractions prior to the pre-approval letter being issued will save time after an executed real estate purchase contract. If credit dispute retractions are done after an executed contract very likely an extension will be required and could cause losing the purchase and maybe even the earnest money. When a consumer retracts credit disputes during the FHA Loan Qualification process their FICO credit scores will drop. Considering FHA will allow a borrower to qualify with a minimum credit score of 580 with 3.5% down payment if you are a borrower on the cusp this could end up a last minute denial. The Larry Stepp Team at Gustan Cho Associates receives many calls from upset consumers because they were pre-approved and no longer qualify. Being informed is critical to the success of home ownership. My Team can be reached 7 days a week, holidays and weekends for your guidance.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com