How Do FHA Mortgage Lenders treat judgements or liens?
All outstanding judgments and liens must be paid prior to or at closing except when the FHA mortgage applicant has an agreement with the creditor to make regular and timely payments. Copy of the agreement and a minimum of three (3) monthly scheduled payments prior to closing.
This includes non-purchasing spouses and registered domestic partners in community property states. FHA mortgage applicant may not prepay scheduled payments in order to meet the three (3) month requirement. Payment is included in the DTI.
FHA Mortgage Lenders For Manually Underwritten loans, reason for approving a loan when the FHA mortgage applicant has judgment(s) or liens regardless of the amount must be documented. The Underwriter must determine if the judgment was result of disregard for financial obligations, inability to manage debt, or extenuating circumstances. The FHA mortgage applicant must provide a letter of explanation with supporting documentation for each outstanding judgment.
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