FHA Loans With Charge-Off Accounts Mortgage Guidelines
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In this article, we will cover and discuss qualifying for FHA loans with charge-off accounts. We get many inquiries from potential borrowers asking us they were told charge-off accounts needed to be paid by lender who denied them an FHA loan. Not all lenders have the same lending requirements on FHA loans. The short answer to this frequently asked question is, charge-offs and collection accounts do not have to be paid to be eligible for FHA loans with charge-off accounts.
HUD, the parent of FHA, states on the HUD 4000.1 FHA Handbook that outstanding unpaid collection and charge-off accounts do not have to be paid to qualify for an FHA loan. Borrowers can qualify for FHA loans with charge-off accounts and collections.
Many folks who had a job loss or lost their business due to the tough economic times we are currently going through are pressured with mounting debts. Collection agencies and bill collectors are relentless and do not care about excuses. Consumers who are behind on bills will constantly get collection calls from collection agencies. Collection demand letters are mailed by collection agencies using law firm letterheads. In the following paragraphs, we will cover and discuss qualifying for FHA loans with charge-off accounts.
Will Charge-Off Accounts Keep Me From Buying House?
Homebuyers can qualify for FHA loans with charge-off accounts. Credit scores will probably fall in the low 500 with recent collections being reported on the credit report. Getting new credit will be challenging, however, consumers can re-establish credit with secured credit cards.
One of the factors in getting an approve/eligible per automated underwriting system is to have been timely on all the monthly debt payments for the past 12 months. You can have prior bad credit, low credit scores, prior late payments older than a year old, collections, and charge-off accounts. But the key in getting an automated findings approval is to have timely payments in the past year.
Recent collections are not viewed as favorable and will plummet credit scores. These credit collection agencies and bill collectors are on commission so phones will be constantly ringing. Collection agencies and bill collectors want to collect their commissions by collecting the outstanding balance of past-due debts.
Collection Agencies and Consumer Rights
Nobody wants to stiff a creditor but there are times in people’s lives when they run into financial hardships. The team at Gustan Cho Associates have helped hundreds of families who have become victims of the financial and real estate collapse of 2008.
Most folks that lost their jobs or had to close their businesses are trying to recover and put food on the table. It is never easy to rebuild and re-establish after an extenuating circumstances such as an extended unemployment, change of jobs, loss of business, loss of income due to divorce, or illness. However, people recover and when they do, they become stronger than ever.
The team at Gustan Cho Associates are experts in helping homebuyers get approved and close on their home mortgage after getting the runaround from a different lender. Over 80% of our homebuyers at Gustan Cho Associates are borrowers who gotten a last-minute mortgage loan denial or could not qualify after being pre-approved due to overlays.
How Long After I Start a New Job Can I Get a Mortgage?
Many have settled for jobs that only offer a fraction of what they used to make. The older you get, the more difficult it is to gain full time employment in a well paying career. Competing with young new college graduates willing and eager to work for a fraction of the wages you are used to is discouraging and often depressing.
People will do whatever it takes to make sure their family has shelter and food on the table. Eventually, most Americans are survivors and fate leads them to a new career or many get multiple part-time jobs to make ends meet.
How can they pay their previous large credit card bills, repossessed auto loan deficient balances, or previous installment loans when they can barely pay their utility payments? Trying to recover is extremely difficult and stressful and having these aggressive non-relenting collection agencies or bill collectors do not help matters.
Will Threats From Collection Agencies Affect Mortgage Approval?
Some collection agencies and bill collectors are so relentless. Many bill collectors will make threat over the phone while some will send notices of intending of suing for the debts owed.
If a collection agency gets wind you are making a good income or have assets, the collection agency will take their collection efforts to the next step and start a lawsuit. Collection agencies can take matters further by filing suit.
If consumers get sued, they need to get served. If consumers do not appear in court, the judge will issue a judgment. Not too many creditors will take a consumer to court for a judgment. Many folks who are going through a financial crisis most likely will have several judgments along with outstanding collections.
Collection Agencies Taking Legal Action
It takes time and money for a creditor to sue a consumer to take their collection efforts to the next level. If the collection agencies and bill collectors really want to pursue collecting the debt, they can start legal proceedings. Creditors need to follow proper legal protocol when they will be taking you to court in hopes of getting a judgment awarded in the creditor’s favor by a judge.
After being served with a summons to appear in court, if the defendant does not appear on the court date assigned, the Circuit Court Judge will normally rule in favor of the creditor with a judgment against the consumer, which is the plaintiff. By getting a judgment against the consumer by the court with a judgment against the consumer, the judgment can be enforced. The creditor can enforce the judgment by going through the proper legal channels and get wage garnishments, placing a lien on the consumer’s properties, assets, vehicles, or other tangible valuables awarded by the court.
Most collection agencies and bill collectors will not go to this extreme but if they do, it could make life very inconvenient for the consumers. There are many options for consumers in dealing with collection agencies and bill collectors. As the old debt ages, collection agencies will eventually give up.
Can I Get a Mortgage With Wage Garnishment?
Once a creditor has a judgment, they can enforce the judgment and take it to court where the courts orders a wage garnishment. The monthly amount taken from the wage earners paycheck will be counted towards the calculation of the borrower’s debt-to-income ratio.
Depending on the severity and aggressiveness of the collection agencies and bill collectors, they do have several options. If they are so relentless that they have gone as far as trying to garnish wages and bank accounts, consumers may consider filing for bankruptcy and consulting with a bankruptcy attorney.
Homebuyers can get a mortgage approval with bad credit, collections, charge-off accounts, late payments, and other derogatory credit tradelines. The team at Gustan Cho Associates are experts in helping borrowers with prior bad credit and have re-established themselves. The key is to make sure you have been making timely payments on time for the past 12 months.
Getting an FHA or VA Loan After Filing Chapter 13 Bankruptcy
The day a consumer file bankruptcy, it halts all collection activities from collection agencies and bill collectors. All wage garnishment stops and gets to be place under suspense. All creditors pursuing collection proceedings against consumers needs to immediately stop once consumers files any types of bankruptcy.
FHA and VA loans are the only two home loan programs that allow borrowers eligible for a home loan during Chapter 13 repayment plan without the Chapter 13 Bankruptcy being discharged.
Homebuyers are eligible to qualify for a VA or FHA loan after filing Chapter 13 Bankruptcy one year into the repayment plan with approval of the bankruptcy trustee. There is no waiting period after Chapter 13 Bankruptcy discharged date on VA and FHA loans. Gustan Cho Associates has non-QM loans during Chapter 13 Bankruptcy repayment plan but requires a 20% to 30% down payment on a home purchase.
Getting a Mortgage After Chapter 13 Versus Chapter 7 Bankruptcy
There are Chapter 7 bankruptcy protection and Chapter 13 bankruptcy protection. Consult an attorney for which bankruptcy program. Bankruptcy protection is collection agencies’ and bill collectors’ biggest fear and enemy. By filing bankruptcy, creditors need to cease and desist all collection activities.
Homebuyers can qualify for FHA loans with charge-off accounts, collections, and late payments that the date of last activity has been seasoned for 12 or more months.
You are eligible to qualify for an FHA or VA loan after making 12 payments on time to the bankruptcy trustee after filing Chapter 13 Bankruptcy. Trustee approval is require and it needs to be a manual underwrite. You need to wait two years after Chapter 7 Bankruptcy discharge date to qualify for an FHA or VA loan. USDA loans requires a three year waiting period after Chapter 7 Bankruptcy discharge. Rebuilt and re-establish credit and no late payments is required.
Filing Bankruptcy Versus Debt Settlement With Collection Agencies
Homebuyers can qualify for FHA loans with charge-off accounts. However, just because you have a charge-off does not mean creditors cannot go after you. That charge-off can become a judgment. Bankruptcy is the worst nightmare for creditors and bill collectors. Bankruptcy will wipe out any rights to collection efforts, expunge all debts and accounts receivables, and all outstanding judgments will be null and void. Chapter 7 Bankruptcy benefits consumers with no assets, no job or irregular earnings. After filing Chapter 7 Bankruptcy, there will be a meeting of creditors that will be scheduled by the Bankruptcy Trustee. That meeting of creditors, normally no creditors will show up to contest the bankruptcy filing. In 90 days after filing Chapter 7 Bankruptcy, the petitioner will get discharged of all debts.
You can qualify for an FHA loan two years after the discharge date of Chapter 7 Bankruptcy. Bankruptcy is a federal law that enables hard working Americans in debt a fresh start with their financial life. Most all debts can be discharged in bankruptcy with the exemption of fraudulently gotten property, debts to the government, federal delinquent taxes, federal student loans, and other non-exempt debts listed under the U.S. Bankruptcy Courts.
There are alternatives to filing for bankruptcy. Consumers can explore the idea of debt settlement. Debt Settlement is when consumers can settle the debt for a fraction of what they owe them and enter into a payment plan. For example, consumers who owe a creditor $1,000, can see if the creditor will settle the debt for $ 500. Consumers can see if creditors will take $50 per month for ten months with no additional interest.
Statute of Limitations on Collections, Charge-Offs, and Judgments
The final option does not to make any payments and ignore them. Eventually, all of the debts will not be collectible because of the statute of limitations. The statute of limitations varies from state to state. In most states, the statute of limitations is 5 years for most debts like credit cards.
The statute of limitations on credit card debts and charge-off accounts is anywhere between three years to seven years depending on the state. Each state has their own statute of limitations on debts. With judgments, each state has their own statute of limitations on judgments. The shortest statute of limitations on judgment is ten years which are a handful of states including Missouri. However, the creditor has a right to renew the judgment prior to the statute of limitation expires for an additional ten years. Depending on the state, creditors may have renewal rights on judgments more than once. Another handful of states have statute of limitation terms on judgment of twenty years. After the first twenty years, the creditor has a right to renew the judgment multiple terms which each term is 20 years. The bottom line is a bankruptcy will wipe out a judgment or judgments. Or you may want to negotiate with the creditor on a repayment plan.
Consumers who decide to ride out debts until the statute of limitations kicks in, do not make partial payments on any debts. partial payments on debts reactivate the date of the last activity and renew the statute of limitations. Derogatory credit remains on the credit report for 7 years from the date of the last activity. After 2 years, it normally does not have any impact on credit scores, especially if rebuilding credit with secured credit cards or other credit.
Qualifying For FHA Loans With Charge-Off Accounts
Home buyers can qualify for FHA loans with charge-off accounts. Although some mortgage lenders might require borrowers to pay an old bad collection account off, this is not HUD Guidelines but rather FHA Lender Overlays. Homebuyers with open collection accounts and charge-offs needing to qualify for FHA Loan with a lender with no overlays, please contact us at Gustan Cho Associates at 1-800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven day a week, evenings, weekends, and during holidays.
