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When it comes to securing a mortgage in Georgia, understanding the nuances between Conventional and FHA loans is crucial, especially when dealing with derogatory accounts such as collections, charge-offs, and judgments. At GeorgiaMortgage.com, we aim to provide clarity on these differences to help you make informed decisions.
Collection Accounts
FHA Loans: For FHA loans, collection accounts must either be paid in full prior to closing or you can use 5% of the outstanding balance and include it in your Debt-to-Income (DTI) ratio. No additional documentation is required, making it a straightforward process.
Fannie Mae (Conventional Loans): The requirements for Fannie Mae loans vary based on the type of property:
– Primary Single-Family Homes: An unlimited amount of collection accounts may remain unpaid.
– Primary 2–4-Unit Properties: If the total collection accounts exceed $5,000, they must be paid off before closing.
– Investment Properties: Any collection account over $250 or a cumulative total of $1,000 must be paid off prior to closing.
IRS Taxes Due:
FHA Loans: FHA requires that you have a payment history of at least three months before closing, but it does not require that three months’ worth of payments be made.
Fannie Mae (Conventional Loans): For Fannie Mae loans, at least one payment must be made before closing, and proper IRS payment plan documentation is required.
Non-Mortgage Charge-Offs
FHA Loans: Non-mortgage charge-offs can remain unpaid, providing some flexibility for borrowers.
Fannie Mae (Conventional Loans): For primary single-family homes, an unlimited amount of non-mortgage charge-offs may remain open. However, for primary 2-4 unit properties or investment properties, the same rules as collections apply.
Judgments
FHA Loans: FHA requires that you have made three months of payments on any judgments, with proper documentation regarding the terms of the payment plan.
Fannie Mae (Conventional Loans): All judgments must be paid in full prior to closing, ensuring that there are no outstanding legal claims against the borrower.
Navigating the mortgage landscape in Georgia can be complex, but understanding the differences between FHA and Conventional loans can make the process smoother. We are here to guide you through every step, ensuring you have the information and support you need to secure your dream home. Whether you’re dealing with collections, charge-offs, or judgments, we have the expertise to help you find the best loan option for your situation. Contact us today to learn more!
Conventional and FHA differ greatly on what derogatory accounts such as collections, charge-offs, judgments, etc are required to be paid off prior to closing or may remain open.
Below is a breakdown:
Collection accounts:
FHA: collection accounts must be paid in full prior to closing OR use 5% of the outstanding balance and include in the DTI. NO other documentation is required.
Fannie Mae:
– unlimited amount of collection accounts may remain UNPAID on a primary single family ONLY.
– Primary 2–4-unit properties: OVER $5,000 in collection accounts MUST be paid off prior to closing.
– Investment properties: $250 per collection account OR $1,000 cumulative must be paid off prior to closing.
IRS taxes due:
FHA: 3 months of payment history and NOT 3 months paid must be made prior to closing.
Fannie Mae: at least 1 payment made prior to closing. Proper IRS payment plan documentation is required.
Non- mortgage Charge-offs:
FHA: may remain unpaid.
Fannie: primary single family an unlimited amount may remain open.
For primary 2-4 units or investment see Collections above for amounts required to be paid off.
Judgements:
FHA: 3 months of payments made and NOT 3 months paid with proper documentation regarding the terms of the payment plan.
Fannie Mae: must be paid in full prior to closing.
Observation:
Freddie Mac does not address this at all and defers to LP findings for recommendations.
