Repossession on a credit report for FHA Loan
8 Votes
How to handle a Repossession on a credit report for FHA Loan Approval?
Q: How should evidence of a previous repossession being on a Borrower’s credit report for an FHA loan be handled?
A:
A Borrower can still owe money after a car or other property has been repossessed by a lender. The loan should be documented with evidence that any outstanding debt that may have resulted from the repossession is included in the qualifying DTI.
Documentation must be included in the loan file by either the borrower or from a credit supplement verifying whether or not any debt was left outstanding after the repossession.
If there is any debt outstanding after the repossession the terms of repayment must be provided and the debt must be included in the DTI.
If the remaining debt has gone into collections or been charged off ensure all FHA collection and/or charge-off requirements are met.
Does FHA require collections to be paid off for a borrower to be eligible for FHA financing?
A Collection Account refers to a Borrower’s loan or debt that has been submitted to a collection agency by a creditor.
If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the lender must:
• verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds;
• verify that the Borrower has made payment arrangements with the creditor and include the mont
