Collections Do Not Always Have To Be Paid
On a one-unit primary residence, at least one program does not require you to pay off outstanding collections or non-mortgage charge-offs before you close.*
On a one-unit principal residence, at least one program does not require you to pay off collections at all.
The rule changes with occupancy, with the dollar total, and with whether the debt is medical.
- For one-unit, principal residence properties, at least one program does not require borrowers to pay off outstanding collections or non-mortgage charge-offs, regardless of the amount.*
- USDA does not require medical collection accounts to be paid off, or charge-off accounts with a repayment plan to be included in the DTI.
- On two- to four-unit owner-occupied and second home properties, at least one program requires collections and non-mortgage charge-offs totaling more than $5,000 to be paid in full prior to or at closing.
- On investment properties, at least one program requires individual accounts equal to or greater than $250, and accounts that total more than $1,000, to be paid in full prior to or at closing.
- Accounts that are reported as past due, and not reported as collection accounts, must be brought current.
- Any delinquent account which is secured against the subject property must be paid in full.
Medical collections are excluded from the limits
Small total balances skip the capacity analysis
Derogatory totals of $5,000 or less can stay
Account age changes the balance allowed
CCCS plan balances come out of the limits
A documented payment arrangement can replace payoff
What is the Saxton Collections and Charge-Offs Home Loan?
A financing path for borrowers whose credit report shows unpaid collection or charged-off accounts.
This is not a separate product. It is how a borrower gets placed when unpaid collection accounts or non-mortgage charge-offs are sitting on the credit report. Every program has an affirmative rule for these accounts. The question is almost never whether you can qualify. It is whether the balance has to be paid before you close, and that answer moves with the program, the property type, and the age of the account.
Most borrowers here find the accounts when they pull their own report. An old cell phone bill. A hospital balance from a bad year. A card that charged off and then went quiet. For one-unit, principal residence properties, at least one program does not require borrowers to pay off outstanding collections or non-mortgage charge-offs, regardless of the amount. Medical collection accounts are excluded from the limits under more than one program.
This is not a way around a payoff on every file. On investment properties, at least one program requires individual accounts equal to or greater than $250, and accounts that total more than $1,000, to be paid in full prior to or at closing. Any delinquent account which is secured against the subject property must be paid in full. Accounts reported as past due, rather than as collections, must be brought current before closing.
Why choose the Saxton Collections and Charge-Offs Home Loan?
This is for the borrower carrying one or more unpaid collection or charged-off accounts today who needs to know which ones have to be paid to close.
The Statute Of Limitations Counts
At least one program accepts collections and charge-offs that have passed beyond the statute of limitation for that state, with supporting documentation required. The file has to show the account is past the limitation period in the state where the debt sits. An old account is not ignored because it is old. It is documented, and then it stops counting against the limit.
Recent Accounts Get Stricter Limits
Recent accounts are treated harder. Under at least one program, non-medical accounts which have entered collection or charge-off status within 12 months of the application date must be paid in full prior to or at closing if the balance of an individual account is greater than $250, or the total balance of all accounts is greater than $1,000. The collection date matters as much as the balance.
Home Equity Loans Are Stricter
A home equity program can run tighter limits than a first mortgage on the same house. Under at least one home equity program, collection accounts or charge-offs must be paid off at, or prior to, closing if the account is greater than $1,000, or if the aggregate of accounts exceeds $2,500. Know which loan type you are in before you assume a balance can stay.
VA Reads Unpaid Collections Closely
On VA files, collection accounts must be considered part of the borrower’s overall credit history, and unpaid collection accounts should be considered open, recent credit. That is not an automatic denial. It does mean the underwriter reads an unpaid collection as current activity on your file rather than as history you have already put behind you.
USDA Underwriters Review Every Account
On USDA files, the underwriter must review all collection and charge off accounts and determine if the applicant is an acceptable credit risk, regardless of GUS underwriting recommendation. An automated approval does not close the question. Expect the collection accounts to get a human read even when the system has already returned a favorable finding.
Community Property States Add Debts
In community property states, non-borrowing spouse collection accounts are included in the cumulative balance, with the exception of obligations excluded by state law. If you are applying alone, your spouse’s collection accounts can still count toward the total a program measures. Bring that up at application rather than at underwriting.
Hear From Homeowners Like You
Frequently Asked Questions
The questions borrowers ask once they see a collection account on their own credit report.
Not always. For one-unit, principal residence properties, at least one program does not require borrowers to pay off outstanding collections or non-mortgage charge-offs, regardless of the amount. That exception does not carry to every property type. On investment properties, the same program requires individual accounts equal to or greater than $250, and accounts that total more than $1,000, to be paid in full prior to or at closing.
Yes, and in more than one place. Under at least one program, medical collection accounts are excluded from the limits and are not required to be paid in full. On FHA files, at least one program excludes medical collections and charge offs. USDA does not require medical collection accounts to be paid off. Non-medical accounts do not get that treatment and are counted against the dollar limits.
Age changes the math. Under at least one program, collections and charge-offs less than 24 months old are allowed with a maximum cumulative balance of $2,000, while collections and charge-offs 24 months old or older are allowed at a maximum of $2,500 per occurrence. The same balance can pass or fail depending on when the account entered collection status.
Not automatically. On VA files, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date the last derogatory credit item was satisfied. The clock runs from the date the item was satisfied, not from the date it first showed up, so an item left unresolved keeps that clock from starting.
Yes. Under at least one program, all collections must show evidence of payment in full prior to closing. Under at least one home equity program, an account greater than $1,000, or an aggregate of accounts above $2,500, must be paid off at or prior to closing. In those programs there is no threshold to sit under. The account gets paid or the file does not close.
Under at least one program, IRS repayment plans with 3 months history of payments may remain unpaid. That is a written exception inside that program’s collection and charge-off section. It does not extend to other unpaid collections, and it requires documented payment history on the plan. There is a separate Saxton page on IRS payment plans if that is the account in question.
The payment often does. If accounts included in a CCCS plan reflect as charge-off or collection accounts on the credit report, at least one program excludes those balances from the charge-off and collection limits, and the monthly CCCS plan payment must be included in the DTI calculation. Where the borrower makes payment arrangements and provides proof of arrangement, the payment is included in DTI. USDA does not require charge-off accounts with a repayment plan to be included in the DTI.
Find out what you qualify for
You do not have to guess whether the collection on your report is a problem. Send the report, tell us the property type and how you plan to occupy it, and you will get a straight answer on which accounts a program requires paid and which ones can stay where they are. Get a fast, no-obligation pre-qualification today.
Get Pre-Qualified*Loan amounts, rates, terms, and down payment requirements are subject to credit approval, income and asset verification, and program eligibility. Rural housing financing is governed by USDA area loan limits and income limits rather than by conforming loan limits. Down payment and cash-out limits vary by occupancy, credit score, and documentation type. Not all applicants will qualify. Saxton Mortgage, LLC is an Equal Housing Lender.