Got Disputes on Your Credit Report? Read This Before Applying for an FHA Loan!

FHA Loan Rules on Disputed Accounts (Updated 2025)

If you’re applying for an FHA loan, but your credit report shows disputed accounts, you need to understand how this can affect your approval. In this video, Joel Lobb — licensed Kentucky Loan Officer (NMLS #57916) — explains the FHA’s updated rules for handling disputed accounts, what counts as “significant derogatory,” and what you can do to improve your chances of approval.

💡 You’ll learn:

• What FHA considers a “disputed account”

• When disputed accounts must be resolved or removed

• The $1,000 threshold rule for disputed derogatory accounts

• Exceptions for medical collections and identity theft

• How to fix credit report disputes before underwriting

FHA Loans & Disputed Accounts: What You Must Know to Avoid Denial

Updated: 2025 | By Joel Lobb, Kentucky Mortgage Loan Officer

📖 Reading Time: 5 minutes

Quick Answer: If you dispute a negative account, it won't automatically disappear from FHA underwriting. Disputed accounts—especially derogatory ones—can derail your mortgage approval. The good news? Understanding FHA's dispute rules puts you back in control.

Introduction

Here's a hard truth that catches many Kentucky homebuyers off guard: if you dispute a negative account, it won't automatically disappear from FHA underwriting. In fact, disputed accounts—especially derogatory ones—can derail your mortgage approval entirely.

I've worked with over 1,300 Kentucky families, and I've seen this exact issue cost borrowers thousands in delays or forced them to start their application over. The good news? Understanding FHA's dispute rules puts you back in control.

In this guide, you'll learn:

• How FHA actually treats disputed accounts (it's different than you think)
• The critical $1,000 threshold that triggers manual review
• Which disputes don't count against you
• Exactly what to do before you apply

What Counts as a Disputed Derogatory Account?

FHA defines disputed derogatory accounts as negative items on your credit report that you're actively disputing. These typically include:

• Collections accounts (unpaid debts sold to collection agencies)
• Charge-offs (accounts creditors wrote off as uncollectible)
• Recent late payments (30+ days late in the last 24 months)

Accounts That DON'T Count (Good News!)

Not all disputed accounts hurt your FHA approval. These are safe:

• Medical collections (always excluded, even if disputed)
• Zero-balance accounts (paid off or settled)
• Non-derogatory disputes (minor errors on good accounts)

Why this matters: FHA underwriters want to see your real financial picture. An inflated credit score that hides payment problems is a red flag for mortgage default risk.

The Critical $1,000 Threshold: FHA's Non-Negotiable Rule

Here's where many borrowers get caught off guard.

If your total disputed derogatory (non-medical) accounts add up to $1,000 or more, FHA requires manual underwriting. This means:

• Your loan won't auto-approve through DU or LPA (Fannie Mae's automated systems)
• A human underwriter will review your entire file
• You'll need documentation proving disputes are valid

Even if an automated system gives you a conditional approval, this rule overrides it.

Example: You have a $600 collection dispute and a $500 charge-off dispute. That's $1,100 total—you've crossed the threshold and triggered manual underwriting, regardless of your credit score.

Disputed Accounts: What FHA Actually Allows

Let's break down the real rules (not assumptions):

Scenario	FHA Rule	What You Should Do
Medical collection disputes	Exempt—don't count	Keep as-is, no action needed
Collections or charge-offs < $1,000 total	No manual underwriting required	Proceed with application
Collections or charge-offs ≥ $1,000 total	Manual underwriting required	Remove or resolve disputes before applying
Identity theft disputes	Can be excluded with documentation	Provide police report or FTC affidavit
Disputes older than 24 months	May not count toward threshold	Discuss with your loan officer
Zero-balance or settled accounts	No action required	Apply normally
Current accounts (never late)	Not derogatory—exempt	No impact on approval

How to Protect Your FHA Approval: Step-by-Step

1Pull All Three Credit Reports

Request free reports from annualcreditreport.com (the only official site). Equifax, Experian, and TransUnion often show different information.

2Identify Disputed Accounts & Calculate Total Balance

List every account you've disputed, note the balance, and add them up. Be honest—include everything marked as disputed.

3Calculate Your Disputed Derogatory Total

Add up only the non-medical collections and charge-offs. If the total is under $1,000, you're in safer territory. If it's $1,000+, plan ahead.

4Make Your Decision

• Under $1,000: You can likely move forward with your application
• $1,000+: Consider removing or resolving disputes before applying

5If You Need to Remove Disputes

Contact each credit bureau directly and request to retract or withdraw your dispute. This removes the "dispute" notation from your report.

Important: Your credit score will likely drop after removing disputes (typically 20-50 points). This is temporary, but it's real. Your loan officer can discuss the impact before you proceed.

6Re-Pull Your Credit Report

Wait 30-45 days, then pull a fresh report to confirm disputes are removed and your score has stabilized.

7Work With Your Loan Officer

Bring your updated credit reports and provide a brief written explanation of any disputes you removed. A knowledgeable FHA loan officer will guide you through the rest.

Common Mistakes That Cost Borrowers

I've seen these happen repeatedly—don't let them happen to you:

Mistake #1: Removing Disputes Without Professional Guidance

Your credit score will drop. If you remove disputes without understanding the impact on your loan approval, you could disqualify yourself unnecessarily. Always consult your loan officer first.

Mistake #2: Confusing "Paid Off" With "Resolved for FHA"

Paying off or settling a disputed account doesn't automatically remove the dispute notation. You still need to formally withdraw the dispute with the credit bureau.

Mistake #3: Thinking Medical Disputes Must Be Removed

Medical collections are exempt from FHA's $1,000 rule. Leave them alone—there's no benefit to removing them, and it just wastes your time.

Mistake #4: Underestimating Lender Overlays

Some lenders have stricter requirements than FHA itself. Before you apply, ask your loan officer about their specific dispute policy. What FHA allows, your lender might not.

Mistake #5: Applying Too Soon After Removing Disputes

Give your credit report time to update (30-45 days minimum). Applying immediately after removing disputes looks suspicious to underwriters.

Frequently Asked Questions

Q: Can I keep medical collections on my credit report?

A: Yes. FHA always excludes medical collections from the $1,000 threshold, even if disputed.

Q: What happens if I cross the $1,000 threshold?

A: Manual underwriting is required. This isn't a denial—it just means a human reviews your file instead of an automated system.

Q: Do I have to pay off all negative accounts to get FHA approved?

A: No. FHA doesn't require you to pay off old debt. You just need to manage disputes properly.

Q: I'm an identity theft victim—can I still get approved?

A: Yes. Provide documentation (police report, FTC affidavit) and FHA will exclude those accounts.

Q: Will my credit score drop if I remove disputes?

A: Likely yes (20-50 points typically). But your FHA approval odds improve significantly.

Q: Does this $1,000 rule apply to pre-approval?

A: Yes. Pre-approval depends on clean credit reporting, just like final approval.

Why This Matters for Kentucky Homebuyers

As a Kentucky mortgage professional with over 20 years of experience, I've guided more than 1,300 families through situations exactly like this. Disputed accounts are one of the top reasons first-time buyers face unexpected delays or denials.

The difference between success and frustration often comes down to knowing these rules before you apply—not after.

Ready to Protect Your FHA Approval?

Don't let disputed accounts derail your homeownership dreams. I'm here to guide you through every step with personalized attention and expert knowledge of Kentucky's FHA programs.

Schedule your free FHA consultation today!

Next Steps

Here's what I recommend:

1. Pull your credit reports this week and identify any disputed accounts
2. Calculate your disputed derogatory total to understand where you stand
3. Schedule a free consultation with an experienced FHA loan officer to review your specific situation
4. Apply for pre-approval once disputes are addressed

Contact Me Today

📧 Email: kentuckyloan@gmail.com

📞 Call/Text: 502-905-3708

I offer free mortgage applications with same-day approvals to keep your process moving quickly. With personalized attention and expert knowledge of Kentucky's housing market, I'll help you achieve your homeownership dreams.

About the Author

Joel Lobb is a Kentucky-licensed Mortgage Loan Officer with over 20 years of experience helping first-time homebuyers and refinance clients navigate FHA, VA, USDA, and KHC programs.

Credentials: NMLS Personal ID: 57916 | Company NMLS ID: 1738461 | View NMLS Consumer Access

Equal Housing Lender

Disclaimer: This website is not endorsed by the FHA, VA, USDA, or any government agency. It is an independent platform created to educate and assist Kentucky homebuyers with expert advice and accessible tools. For official FHA guidelines, visit fha.gov.

Equal Housing Lender

Medical Debt Collections being Removed from Credit Reports

Medical Collections on Credit Report

The Consumer Financial Protection Bureau (CFPB) finalized a rule January 7, 2025 that will remove $49 billion in medical debt from credit reports, helping 15 million Americans! 

Here’s what’s changed: 

• Medical bills are no longer on credit reports – They won’t hurt your score anymore. 
• Lenders can’t use medical info in loan decisions. 
• Credit scores could rise – Many people will see a boost of points
•  More mortgage approvals

1 -  Email - kentuckyloan@gmail.com 

2.   Call/Text - 502-905-3708

Joel Lobb
Mortgage Loan Officer - Expert on Kentucky Mortgage Loans

 Website: www.mylouisvillekentuckymortgage.com
 Address: 911 Barret Ave., Louisville, KY 40204

---

Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.

Kentucky Local Home Loan Lender Services

 First-Time Home Buyers Welcome
 FHA, Rural Housing (USDA), VA, and Kentucky Housing Corporation (KHC) Loans
 Conventional Loan Options Available
 Fast Local Decision-Making
 Experienced Guidance Through the Home Buying Process

Kentucky VA Mortgage Guidelines for Collections and Charged Off Accounts.

 Collection Accounts for Kentucky VA Mortgage Loans

Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. A credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval.

However, collection accounts must be considered part of the borrower's overall credit history and unpaid collection accounts should be considered open, recent credit.

Borrowers with a history of collection accounts should have re-established satisfactory credit in order to be considered a satisfactory credit risk.

While VA does not require that collection accounts be paid-off prior to closing if the borrower's overall credit is acceptable, an underwriter must address the existence of the collection account(s) with an explanation on VA Form 26-6393, Loan Analysis , for excluding the negative credit history they represent.

If the collection account is listed on the credit report with a minimum payment, then the debt should be recognized at the minimum payment amount.

Charged off Accounts for Kentucky VA Mortgage Loans

These accounts are typically collections in which the creditor is no longer pursuing collection of the account. The underwriter must address the circumstances regarding the negative credit history when reviewing the overall credit of the borrower(s).

Have Questions or Need Expert Advice? Text, email, or call me below:

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916


American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364



Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).

Equifax, Experian and TransUnion will also no longer include medical collection debt under at least $500 on credit reports

 Consumer Reporting Agencies to Remove Most Medical Debt From Credit Reports

The three nationwide credit reporting agencies, Equifax, Experian and TransUnion, announced that effective July 1, 2022, they will no longer include medical debt that was paid after it was sent to collections on consumer credit reports.

The companies’ CEOs provided a joint statement on the decision to change their approach to medical collection debt reporting:

“Medical collection debt often arises from unforeseen medical circumstances. These changes are another step we’re taking together to help people across the United States focus on their financial and personal wellbeing,” said Mark W. Begor, CEO Equifax; Brian Cassin, CEO Experian; and Chris Cartwright, CEO TransUnion. “As an industry we remain committed to helping drive fair and affordable access to credit for all consumers.”

The time period before unpaid medical collection debt would appear on a consumer’s report will be increased from 6 months to one year, according to a press release, “giving consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file.”

In the first half of 2023, Equifax, Experian and TransUnion will also no longer include medical collection debt under at least $500 on credit reports.

The changes will remove nearly 70% of medical debt in collections accounts from consumer credit reports.

How do collections and charge offs on the credit report affect a Kentucky VA Mortgage Loan Approval?

In order to get approved for a Kentucky VA loan with outstanding collections and charge offs listed on

the credit report, the VA underwriter will want to know the following about them:

Collections & Charge Offs are two different things.  Below is what VA saying about them:

 

Collection Accounts

Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. A credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval.

However, collection accounts must be considered part of the borrower's overall credit history and unpaid collection accounts should be considered open, recent credit.

Borrowers with a history of collection accounts should have re-established satisfactory credit in order to be considered a satisfactory credit risk.

While VA does not require that collection accounts be paid-off prior to closing if the borrower's overall credit is acceptable, an underwriter must address the existence of the collection account(s) with an explanation on VA Form 26-6393, Loan Analysis, for excluding the negative credit history they represent.

If the collection account is listed on the credit report with a minimum payment, then the debt should be recognized at the minimum payment amount.

Charged off Accounts

These accounts are typically collections in which the creditor is no longer pursuing collection of the account. The underwriter must address the circumstances regarding the negative credit history when reviewing the overall credit of the borrower(s).

 

 
2 different topics best if you can send me credit to review. 

 

·         Charged off accounts generally ignored

·         Collection accounts on Federal debt are a big issue so we careful there

·         Collections not required to be paid off unless they are extremely high

·         Manual Underwrite we do require an LOE from Veteran for collections

·         What happened, what they did to resolve, what are they doing in the future to either resolve or to prevent this from happening and finally if they are going to enter into a payment plan or not.  Ultimately on the resolution of the collection the UW does not care but VA requires that as part of LOE.

 

Hope this helps send me credit for full evaluation.

 

The VA underwriter will want to verify the Kentucky Mortgage Veteran has the ability to pay these items or will want to know how they were paid off before closing.

Any collection or charge off showing as a judgement or lien on the VA mortgage applicant's credit report, must be paid before closing. These affect the title and must be paid before the mortgage is recorded.

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
kentuckyloan@gmail.com
http://www.mylouisvillekentuckymortgage.com/

This website is not affiliated with any government agencies, including the VA. NMLS ID #57916 (www.nmlsconsumeraccess.org)

How do Judgements affect a Kentucky Mortgage Loan Approval?

Judgments and how they affect a Kentucky Mortgage Loan Approval.

Judgements are treated differently than collections when it comes to a mortgage loan approval in Kentucky. 

• All judgments must be paid off prior to the loan closing unless there is a written agreement for a payment plan.
• In order to accept a payment plan for a judgment, the written agreement must be provided along with evidence that at least 3 payments have been made and that all payments have been made on time.
• Any payment plan for a judgment must have its monthly payment include in the DTI calculation.
• Judgments of a Non-Purchasing Spouse in a community property state must be included, unless excluded by state of Kentucky 

Fill out my form!

-- 

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

 phone: (502) 905-3708

 Fax:     (502) 327-9119

kentuckyloan@gmail.com

 Company ID #1364 | MB73346

http://mylouisvillekentuckymortgage.com/