Unpaid Federal Debts and Your FHA Loan Application
FHA loan found in HUD 4000.1 provide your loan officer with a way to measure a borrower’s creditworthiness in situations where the applicant comes to the FHA loan process with federal debt. The participating FHA lender is responsible for insuring the borrower is not delinquent on the payments of that debt.
Borrowers who are delinquent and are shown to be delinquent “on paper” or “on the record” with the government agency in question would not be eligible for an FHA mortgage loan--until such time as they have corrected the delinquency to the satisfaction of the government.
Borrowers should know that the debt does NOT have to be paid in full--arrangements to pay off the debt can be made that will satisfy the government and FHA loan rules. How does this work?
The FHA recognizes two types of circumstances–tax debt and non-tax debt.
For tax debt, the FHA states:
“Tax liens may remain unpaid if the Borrower has entered into a valid repayment agreement with the federal agency owed to make regular payments on the debt and the Borrower has made timely payments for at least three months of scheduled payments. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments.”
For non-tax related debt, FHA loan rules say, “In order for a Borrower with verified delinquent Federal Debt to become eligible, the Borrower must resolve their federal non-tax debt in accordance with the Debt Collection Improvement Act. The creditor agency that is owed the debt can verify that the debt has been resolved in accordance with the Debt Collection Improvement Act.”
That information is found in HUD 4000.1 Section II Part A, under the heading, “Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt”.
As evidenced by the rules above, these issues are handled on a case-by-case basis. FHA loan applicants in these situations will be asked to provide supporting documentation or other evidence to show a payment plan or other resolution has been established.
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