New FHA rule regarding old debt and new mortgages


That item on your credit report that kept you from getting a mortgage might not be a problem anymore.

It used to be that if you wanted to qualify for a mortgage and you had a $5 fine for an overdue library book, it hurt you as much as if you had a $15,000 charge-off from a credit card. Silly, right? But that was then and this is now.

The Federal Housing Administration (FHA) has a new policy about how they treat bad debt on your credit report. And with almost all mortgages being federalized these days, I’m expecting this will be an important change for would be homebuyers.

Under the new rules, when you apply for an FHA loan, you can now have a sum total of $1,000 or less in outstanding collections and that will not automatically keep you from qualifying for the mortgage.

In my mind, that shows good common sense because the old way was so silly. Why should a dispute over an old library book — or maybe a cell phone company that says you owe them $100 — keep you from getting a mortgage?

This is a good common sense change. I hope it becomes commonplace.

Yet understand this: If you have a brand new collection on your report of any size, that is still a danger signal and may put a red light on you getting a loan. The age of the debt is the key here.

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