One particularly important FHA underwriting distinction concerns outstanding collection balances.
For cumulative nonmedical collections of $2,000 or more, FHA generally requires payoff, an acceptable documented payment arrangement, or a qualifying monthly payment calculated at 5% of the outstanding balance.
For example, $4,000 in applicable unpaid collections can result in a $200 monthly DTI obligation if the 5% calculation is used.
Charge-offs are treated differently and generally are not automatically required to be paid. Manual underwriting can require additional credit analysis and explanations.
