Does FHA Require Medical Collections to Be Paid Off?
The Federal Housing Administration (FHA) is a government agency that insures mortgages for borrowers who may not qualify for conventional loans. One common question among potential borrowers is whether they need to pay off medical collections before applying for an FHA loan. In this article, we will explore the FHA’s stance on medical collections and their impact on loan approval.
Understanding Medical Collections
Medical collections refer to debts that have been sent to a collection agency due to non-payment of medical bills. These collections can arise from a variety of situations, such as unpaid hospital bills, doctor’s visits, or dental treatments. While medical collections can negatively impact a borrower’s credit score, the FHA has specific guidelines regarding their consideration in loan applications.
FHA Guidelines on Medical Collections
According to FHA guidelines, medical collections do not necessarily need to be paid off before applying for an FHA loan. However, there are certain conditions that borrowers must meet:
1.
Age of the Collections
FHA requires that medical collections be at least 12 months old before they can be disregarded. This means that if a borrower has a medical collection that is less than 12 months old, it will be considered in the loan application process.
2.
Debt Amount
The total amount of medical collections must not exceed $2,000. If the collections exceed this amount, the borrower will need to pay them off or provide a satisfactory explanation for the outstanding debt.
3.
Verification of Debt
Borrowers must provide documentation verifying the existence of the medical collections, such as a letter from the collection agency or a copy of the original medical bill.
4.
Payment History
Borrowers with medical collections should demonstrate a good payment history on their other debts. This can help offset the negative impact of the collections on their credit score.
Conclusion
In conclusion, while FHA does not require medical collections to be paid off before applying for a loan, there are specific guidelines that borrowers must follow. By meeting these conditions, borrowers can improve their chances of loan approval and secure the financing they need for their home purchase. It is essential for borrowers to understand these guidelines and consult with a mortgage professional to ensure a smooth loan application process.
