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Open account, closed accounts FHA Mortgages


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Hello. I searched the forums for FHA loans and found most of the answers I was seeking but still have some questions.

I understand the FHA does not allow "open" collections and COs. What exactly does OPEN mean? If the status is "closed" or "unknown" for instance, but I have not paid them, is that still considered open? To me it seems it is an item which has been written off on a profit and loss statement i.e. it'd been depreciated, and tax cuts have been taken to compensate.

I have a couple car repos on my reports. One of them was my Ex wife's from our divorce, the other from a layoff. However, the account status is "CLOSED" on both. Please advise.

Thanks all!

Tim

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It's possible that you came across FHA terminology which speaks of "open" and "closed" accounts. The issue is actually "outstanding" collection and charged off accounts. FHA does not like to see balances owing, while many conventional lenders will allow unpaid collections that are medical in nature (regardless of reporting date) and other unpaid collections that have not been updated within the past 24 months.

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FHA loans, because they are secured by government insurance, have to be done so that there is no possibility of any outstanding claim affecting the property.

So long as the accounts are "brought current" or settled, the FHA is happy. They just don't want some creditor coming by with a lien claim on the house.

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FHA approval is very simplistic. There can be no collections or charge offs with ballances. If they are paid and DLA is over 2 years they are not even consideration according to guidlines, however on manual review from the lender/underwritter they will ask for an explantion letter. Most Mgt brokers/retail originators will "help" you write the right letter. Many times unpaid medical collection over 2 years old will not need to be paid for FHA to insure the loan, exception to statement above. Under 2 years they need to be paid. I have seen borrowers get automated underwriting, the computer approves you, with open collections. For those that are trying to buy a home with damaged credit FHA is the way to go. The guidelines make it easy to qualify. I have arranged FHA loan for people in a Chapter 13 BK.

PAR

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