FHA CHANGES TO HANDLING OF COLLECTIONS, JUDGEMENTS AND DISPUTED ACCOUNTS ON CREDIT REPORT

FHA CHANGES TO HANDLING OF COLLECTIONS

AND DISPUTED ACCOUNTS

FHA recently released Mortgagee Letters 2013-24 and 2013-25, to amend guidance on collections and disputed accounts and to clarify guidance on judgments. These changes will become effective for all case numbers assigned on or after October 15, 2013. This will apply to all FHA programs, with the exception of non-credit qualifying streamline refinances and Home Equity Conversion Mortgages. The changes are found below. Should you have any questions, please contact your Account Manager.

1.           Credit Analysis of Collections and Judgments. Collections and judgments may indicate a borrower's disregard for credit obligations and must be considered in the creditworthiness analysis. The guidance below applies to loans with collection accounts and all judgments. Medical collections and charge off accounts are excluded from this guidance.

• Applicable to Manually Underwritten Loans: The lender must document reasons for approving a mortgage when the borrower has collection accounts or judgments.

Regardless of the amount of outstanding collection accounts or judgments, the lender must determine if the collection account or judgment was a result of:

• The borrower's disregard for financial obligations;
•  The borrower's inability to manage debt; or
• Extenuating circumstances.

The borrower must provide a letter of explanation with supporting documentation for each outstanding collection account and judgment. The explanation and supporting documentation must be consistent with other credit information in the file.

• Applicable to Loans Run Through TOTAL Mortgage Scorecard: TOTAL Mortgage Scorecard Accept/Approve - There are no documentation or letter of explanation requirements for loans with collection accounts or judgments run through TOTAL Mortgage Scorecard receiving an "Accept/Approve" despite the presence of collection accounts or judgments. These accounts have been already taken into consideration in the borrower's credit score. If TOTAL Mortgage Scorecard generates a"Refer," the lender must manually underwrite the loan in accordance with the guidance above applicable to manually underwritten loans with collection accounts and judgments. 

All medical collections and charge off accounts are excluded from this guidance and do not require resolution.

2.           Capacity Analysis of Collections and Judgments.

Collections - FHA does not require collection accounts to be paid off as a condition of mortgage approval. However, FHA does recognize that collection efforts by the creditor for unpaid collections could affect the borrower's ability to repay the mortgage. To mitigate this risk, FHA is requiring a capacity analysis of collection accounts with an aggregate balance equal to or greater than $2,000, as described below.

If the total outstanding balance of all collection accounts for all borrowers is equal to or greater than $2,000, the lender must perform a capacity analysis as detailed below. Unless excluded under state law, collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance.

All medical collections and charge off accounts are excluded from this guidance and do not require resolution.

Capacity analysis includes any of the following actions:

• At the time of or prior to closing, payment in full of the collection account (verification of acceptable source of funds required).
• The borrower makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower's debt-to-income ratio.
• If evidence of a payment arrangement is not available, the lender must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower's debt-to-income ratio.

TOTAL Mortgage Scorecard Accept/Approve/Refer - Regardless of the Accept/Approve/Refer recommendation by TOTAL Mortgage Scorecard, the lender must include the payment amount in the calculation of the borrower's debt-to-income ratio.

               Judgments - FHA requires judgments to be paid off before the mortgage loan is eligible for FHA insurance. An exception to the payoff of a court ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three months of scheduled payments have been made prior to credit approval.

Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three months of payments. Furthermore, lenders are instructed to include the payment amount in the agreement in the calculation of the borrower's debt-to-income ratio.

FHA requires judgments of a non-purchasing spouse in a community property state to be paid in full, or meet the exception guidance for judgments above, unless excluded by state law.

    3.           Handling of Disputed Accounts - The existence of potentially inaccurate information on a borrower's credit report resulting in a dispute must be reviewed by an underwriter. Accounts that appear as disputed on the borrower's credit report are not considered in the credit score utilized by TOTAL Mortgage Scorecard in rating the application. Therefore, FHA requires the lender to consider them in the underwriting analysis as described below.

With this ML, FHA is revising policy on manual downgrades for applications with disputed accounts to reflect the risk associated with derogatory and non-derogatory disputed accounts for factors such as age and size of outstanding balance.

Disputed Derogatory Accounts Indicated on the Credit Report - If the credit report utilized by TOTAL Mortgage Scorecard indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute. The lender must analyze the documentation provided for consistency with other credit information in the file to determine if the derogatory credit account should be considered in the underwriting analysis.

Guidance for TOTAL Mortgage Scorecard Accept/Approve loans with disputed accounts.

Disputed Derogatory Credit Accounts greater than or equal to $1,000	If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a"Refer" and a Direct Endorsement underwriter is required to manually underwrite the loan as described above.
Disputed Derogatory Credit Accounts less than $1,000	If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required.
Excluded Accounts	Disputed medical accounts are excluded from the $1,000 limit and do not require documentation. Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit. However, the lender must provide in the case binder a credit report, letter from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges.

Disputed derogatory credit accounts are defined as follows:

• disputed charge-off accounts,
• disputed collection accounts, and
• disputed accounts with late payments in the last 24 months.

Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a "Refer".

Non-derogatory disputed accounts are excluded from the $1,000 cumulative total.

Non-Derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report - Non-derogatory disputed accounts include the following types of accounts:

• disputed accounts with zero balance,
• disputed accounts with late payments aged 24 months or greater, and
• disputed accounts that are current and paid as agreed.

 If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a "Refer." However, the lender must analyze the effect of the disputed accounts on the borrower's ability to repay the loan. If the dispute results in the borrower's monthly debt payments utilized in computing the debt-to-income ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments.

If you have loans pending that these changes will affect, be sure to order the FHA case number prior to October 15, 2013.

-- 

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

Fill out my form for mortgage pre-approval by clicking this link!

Medical Debt Collections being Removed from Credit Reports

Medical Collections, Credit Scores, and Getting Approved for a Mortgage in Kentucky

If you are shopping for a home loan in Kentucky and have medical collections on your credit report, you are not alone. A recent federal court decision reversed a rule that would have kept medical debt off credit reports and out of credit decisions. As a result, medical collections can now show up again on your credit report and may impact your credit score and mortgage approval.

This guide explains how the new medical debt landscape affects Kentucky FHA, VA, USDA, KHC, and conventional mortgage borrowers, and what you can do before you apply.

What Changed: Federal Medical Debt Protections Rolled Back

Earlier in 2025, the Consumer Financial Protection Bureau (CFPB) finalized a rule that would have:

• Kept medical debt off credit reports
• Excluded medical debt from credit scores
• Prevented lenders from using medical collections in credit decisions

The CFPB estimated that about 15 million Americans would have seen roughly $49 billion in medical debt removed from their records. However, the rule was immediately challenged in court. Under the new administration, the CFPB stopped defending the rule and agreed it should be blocked. A federal court then overturned it.

The net result is simple: medical collections can now be reported again and can be considered when you apply for credit, including a mortgage loan.

How Medical Collections Show Up on Your Credit Report

Medical collections typically appear on your credit report as collection accounts, often reported by a third-party collection agency rather than the original medical provider. Even if the original bill was small or related to an insurance dispute, the collection can still show as a derogatory item.

Depending on how recent and how many medical collections you have, you may see:

• Lower FICO scores
• More conservative automated underwriting findings (AUS)
• Requests for letters of explanation and documentation
• Additional conditions during underwriting

How Medical Collections Affect Mortgage Approval in Kentucky

Medical collections are not treated exactly the same as credit card charge-offs or auto repossessions, but they can still make a difference in whether you are approved and what terms you receive. Here is how they can impact different loan types in Kentucky:

FHA Loans

FHA guidelines are often more flexible with medical collections than with other types of debt, but they still matter. Too many recent medical collections can trigger:

• Manual underwriting instead of automated approval
• Closer review of payment history and explanations
• Requests for proof that any disputes or insurance issues have been resolved

Learn more about FHA guidelines here: Kentucky FHA Mortgage Loans

VA Loans

VA loans look at the overall picture: residual income, payment history, and the nature of your collections. One or two older medical collections may not be a deal breaker, but larger or recent medical collections can raise red flags and lead to extra documentation requirements or compensating factors.

Read more about VA loans: Kentucky VA Home Loans

USDA Rural Housing Loans

USDA loans are strict about overall credit history and payment patterns. Medical collections can hurt your USDA approval odds if they are recent, numerous, or combined with other negative items. Underwriters will want to see that the situation is under control and not ongoing.

Explore USDA options here: Kentucky USDA Rural Housing Loans

Kentucky Housing Corporation (KHC) and Down Payment Assistance

When you use KHC down payment assistance with FHA, VA, USDA, or conventional loans, both the first mortgage and the KHC program will review your credit. Medical collections do not automatically disqualify you, but they can affect the combination of score, DTI, and program eligibility.

Learn how KHC works with first-time buyers: Kentucky Housing Corporation (KHC) Programs

Conventional (Fannie Mae/Freddie Mac) Loans

Conventional loans tend to be more credit-score driven. Medical collections can drag down your score and cause you to:

• Miss program or pricing cutoffs
• Need a larger down payment
• Receive less favorable interest rates

Why Medical Debt Is So Common, Even With Insurance

Millions of Americans, including Medicare beneficiaries and people with employer plans, carry unpaid medical bills. Common causes include:

• High deductibles and co-pays
• Out-of-network charges
• Surprise emergency bills
• Insurance delays, denials, and disputes

For many families, this leads to:

• Using credit cards to cover basic expenses
• Draining savings accounts
• Falling behind on other bills
• Delaying or skipping needed medical care

What You Should Do Before Applying for a Mortgage if You Have Medical Collections

1. Pull your credit reports from all three bureaus so you can see exactly which medical collections are reporting and for how much.
2. Verify accuracy. Make sure the balances, dates, and providers are correct. Many medical collections come from insurance billing issues.
3. Resolve insurance disputes first. If the bill should have been paid by your insurance, work with the insurer and provider to correct it.
4. Consider settlement on smaller or older collections when it makes sense strategically. In some cases, paying or settling a medical collection can help your overall profile.
5. Prepare a clear letter of explanation for any major medical event or period of hardship that led to the collections.
6. Avoid adding new debt or opening new credit lines right before or during the mortgage process.

Frequently Asked Questions about Medical Collections and Kentucky Mortgages

Do medical collections still show on credit reports after the rule was reversed?

Yes. With the federal rule blocked, medical collections can be reported again and may show up as derogatory accounts on your credit report.

Will medical collections automatically stop me from buying a home in Kentucky?

Not necessarily. Approval depends on the number of collections, how recent they are, your overall credit profile, income, debt-to-income ratio, and the loan program you are using. Many buyers with medical collections still qualify, especially with FHA and VA loans.

Should I pay off all medical collections before I apply?

It depends. Paying off certain collections can help, but in other cases the impact may be limited. The best approach is to review your full credit picture with a knowledgeable Kentucky mortgage broker and develop a strategy that matches your goals and timeline.

What if the medical collection is due to an insurance mistake?

Document everything. Keep copies of bills, explanation of benefits (EOBs), and correspondence with your provider and insurer. Underwriters are more understanding when you can show that the collection came from an insurance dispute rather than from ignoring bills.

Can a local Kentucky mortgage broker help if I have medical collections?

Yes. A local, experienced mortgage broker can review your credit report, explain how specific medical collections will be viewed under FHA, VA, USDA, KHC, and conventional guidelines, and help you choose the program and timing that gives you the best chance of approval.

Next Steps: Talk Through Your Situation Before You Apply

Every borrower’s medical and credit story is different. If you have medical collections and want to buy a home in Kentucky, the smartest move is to review your situation early, before you make an offer on a home.

Reach out to discuss your credit, medical debt, and homebuying goals. We can look at your credit reports, run payment scenarios, and outline a game plan to get you mortgage-ready.

Joel Lobb, Mortgage Broker FHA, VA, KHC, USDA
NMLS 57916 • EVO Mortgage NMLS 1738461
Call/Text: 502-905-3708
Email: kentuckyloan@gmail.com
Website: www.mylouisvillekentuckymortgage.com
Equal Housing Lender

Medical Collections & Kentucky Mortgage Approval

What You Need to Know in 2025

What Changed?

• Federal rule keeping medical debt off credit reports was overturned.
• Medical collections can now appear again.
• Lenders may use medical debt in mortgage decisions.

Impact on Your Mortgage Application

Credit Report Impact

• Lowers FICO scores
• Adds derogatory accounts
• Stricter automated findings

Underwriting Impact

• Extra documentation required
• Possible manual underwriting
• Stricter USDA & Conventional standards
• Can affect rate & down payment

What To Do Before You Apply

1. Pull all 3 credit reports and review for accuracy.
2. Verify accuracy — many errors are insurance-related.
3. Resolve insurance disputes first.
4. Consider strategic settlements with creditors.
5. Prepare a concise letter of explanation for lenders.

Free Medical-Debt Mortgage Review

Ready to explore your mortgage options?

📞 Call/Text 502-905-3708 📧 Email

Joel Lobb | Mortgage Loan Officer
FHA • VA • KHC • USDA • Fannie Mae
NMLS Personal ID: 57916 | Company NMLS ID: 1738461
EVO Mortgage | Equal Housing Lender

This website is not endorsed by the FHA, VA, USDA, or any government agency. It is an independent platform created to educate and assist homebuyers with expert advice and accessible tools.

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

Kentucky VA Loan Guidelines: Collections, Charge-Offs, Judgments and Liens

Many Kentucky veterans are worried that old collections or charge-offs will automatically stop a VA home loan approval. In most cases, that is not true. The VA underwriter looks at the whole credit picture, not just one negative item, and wants to know whether you are a satisfactory long-term credit risk.

This guide explains how Kentucky VA lenders typically treat collection accounts, charge-offs, judgments and liens when you apply for a VA mortgage.

VA credit guidelines can be flexible, but every file is different. The best way to know where you stand is to have your full credit report reviewed by a VA-approved lender who understands Kentucky guidelines.

How VA Views Collection Accounts

VA does not automatically require every collection to be paid before you can close on a home. Instead, the underwriter reviews the type, age, size and pattern of the collection accounts and whether you have re-established good credit since those events.

Key points about collection accounts

• Isolated or low-impact collections (especially older medical collections) generally do not have to be paid as a condition of approval.
• All collections are still treated as part of your overall credit history, even if payment is not required.
• If the credit report shows a minimum monthly payment on a collection, that payment may need to be counted in your debt-to-income ratio (DTI).
• Borrowers with prior collections are expected to show re-established, on-time credit afterward.
• The underwriter documents the handling of collections on VA Form 26-6393, Loan Analysis, to explain why the negative history does not make the loan unacceptable.

When a Letter of Explanation is needed for collections

For many Kentucky VA loans, especially manual underwrites, the lender will ask for a short written Letter of Explanation (LOE) that covers:

• What happened that led to the collection
• What you did to resolve or address it
• What you are doing now to avoid the same situation in the future
• Whether you plan to pay it, settle it or leave it as is

The goal is to show that the collection is tied to a specific, understandable event and that your current behavior reflects responsible money management.

How VA Views Charge-Off Accounts

Charge-offs are accounts the creditor has written off and is no longer actively trying to collect. VA generally treats them differently than active collections.

Key points about charge-offs

• Charge-offs usually are not required to be paid for a VA loan approval.
• They are often ignored for DTI purposes since there is no active minimum monthly payment.
• The underwriter still looks at the circumstances and timing of the charge-offs to decide whether you have since re-established good credit.

Even when a charge-off does not need to be paid, it still contributes to the overall picture of how you have used credit in the past.

Debts That Must Be Paid Before a Kentucky VA Closing

Some items cannot simply be left unpaid because they affect title and the legal ability to record the new mortgage. These almost always must be paid or released prior to closing.

Judgments

• Civil judgments reported on credit or discovered in public records generally must be paid in full or have a documented, satisfactory repayment agreement in place.
• Judgments can attach to the property and impact title, so they must be resolved before recording the VA mortgage.

Liens

• Tax liens, child support liens and other recorded liens must be paid, released or otherwise cleared before closing.
• Federal debt issues are treated very seriously. Delinquent federal debt will usually stop a VA loan until it is resolved.

When VA Credit Issues Lead to Manual Underwriting

Not every VA file receives an Approve/Eligible recommendation through automated underwriting. When there are multiple collections, recent late payments or other risk factors, your loan may be manually underwritten.

On a manual underwrite, the underwriter will focus heavily on:

• Pattern of on-time payments over the last 12–24 months
• Stability of income and employment
• Overall DTI ratio and residual income
• Strength of the LOE around prior collections or charge-offs

Good, recent payment history can often outweigh older negative items if the rest of the file is strong.

Key Takeaways for Kentucky VA Homebuyers

• Most standard collections do not automatically have to be paid to qualify for a VA loan.
• Charge-offs are often ignored for DTI, but still reviewed as part of credit history.
• Judgments, tax liens and many federal debts must be cleared or resolved before closing.
• A clear, honest Letter of Explanation helps the underwriter understand what happened and why your situation is now stable.
• The best approach is a full credit review by a Kentucky VA lender who knows how to work within VA guidelines.

Request a Kentucky VA credit review

If you have collections or charge-offs and you are not sure how they will affect your VA home loan, I can review your credit report and give you a clear plan. Many veterans are closer to qualifying than they think once the file is structured correctly.

Joel Lobb (NMLS #57916)
Senior Loan Officer
Cell/Text: 502-905-3708
Email: kentuckyloan@gmail.com
Website: www.mylouisvillekentuckymortgage.com

More Kentucky VA Loan Resources

• Kentucky VA loan requirements and updates
• All VA loan articles for Kentucky veterans
• Start a Kentucky VA loan application

This website is not affiliated with any government agency, including the U.S. Department of Veterans Affairs (VA).
NMLS ID #57916 (www.nmlsconsumeraccess.org)

Kentucky Mortgage Loan Programs | FHA, VA, USDA & Conventional Guide

Understanding the Four Main Mortgage Loan Programs in Kentucky

When buying a home in Kentucky, your mortgage will typically fall under one of four major loan programs: FHA, VA, USDA, or Conventional (Fannie Mae/Freddie Mac). Each program offers unique benefits depending on your credit, income, military status, and location. Below is a streamlined breakdown to help you determine the best fit for your situation.

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Conventional Loan

• Minimum down payment: 3%–5%
• Minimum credit score: 620 (680+ for best pricing)
• Mortgage insurance can be removed at 80% equity
• Best for: buyers with strong credit & stable income
• Bankruptcy wait: 4–7 years
• Foreclosure wait: 7 years
• Closing costs can be lender-paid (higher rate)

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Kentucky USDA Rural Housing Loan

• 100% financing (0% down)
• Credit score: 640+ for automated GUS approval
• Mortgage insurance: .35% monthly, 1% upfront
• Manual underwriting ratio caps: 29% / 41%
• Property must be USDA-eligible rural area
• Bankruptcy wait: 3 years
• No USDA loan limit

USDA Map Eligibility: Click here to check address eligibility

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Kentucky FHA Loan

• 3.5% down with 580+ score
• 10% down with scores 500–579
• Allows gifts + KHC down-payment assistance
• Mortgage insurance: 0.85% monthly, 1.75% upfront, MI for life
• Bankruptcy wait: 2 years (Ch. 7), 1 year Ch. 13
• Foreclosure wait: 3 years

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Kentucky VA Loan

• 0% down for veterans & eligible military
• No monthly mortgage insurance
• Funding fee: 2.3% first use / 3.6% subsequent (financed)
• Credit score: most lenders want 580+
• No income limits, no loan limits
• Bankruptcy/foreclosure wait: 2 years

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Kentucky Down Payment Assistance (KHC)

• $10,000 second mortgage repaid over 10 years
• Works with FHA, VA, USDA, Conventional
• Minimum credit score: 620 (660 for KHC Conventional)
• Max DTI: 50%

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Explore More Kentucky Home Loan Resources

• Kentucky First-Time Homebuyer Guide
• Kentucky FHA Loan Requirements
• Kentucky VA Home Loan Guide
• USDA Property Eligibility Map for Kentucky
• Documents Needed for a Mortgage Loan
• Start a Mortgage Pre-Approval

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Joel Lobb
Mortgage Loan Officer – Kentucky FHA, VA, USDA, KHC, Conventional
Evo Mortgage

Email: kentuckyloan@gmail.com
Call/Text: 502-905-3708
Website: www.mylouisvillekentuckymortgage.com
Address: 911 Barret Ave., Louisville, KY 40204

EVO Mortgage – NMLS #1738461
Joel Lobb – NMLS #57916

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

Louisville Kentucky Mortgage Lender for FHA, VA, KHC, USDA and Rural Housing Kentucky Mortgages: Disputes on Credit Report and Kentucky Mortgage Lo...

Louisville Kentucky Mortgage Lender for FHA, VA, KHC, USDA and Rural Housing Kentucky Mortgages: Disputes on Credit Report and Kentucky Mortgage Lo...: 

Applying for a Kentucky Mortgage Soon? Don't Dispute that Account       Sounds counterintuitive, I'm sure ...       But until you...

 Got Dispute Comments on Your Credit Report? 

If you've disputed any accounts in the past, chances are your credit report still has dispute comments listed. That might seem harmless—but if you're applying for a mortgage, those comments could delay or even block your loan approval.

 Here’s what you can do:

1. Call each credit bureau (numbers on the graphic).

2. Ask to remove any dispute comments.

3. Verify they’re gone by pulling a fresh consumer credit report.

4. Follow up within 72 hours to confirm it’s been done.

Pro Tip: Do this before your lender pulls your credit. It could save time, stress, and keep your home loan on track.

If you’re not sure where to start, drop a comment or shoot me a message. I’m here to help walk you through the process!

#CreditTips #MortgageReady #HomeLoanHelp #KentuckyMortgage #JoelLobb #CreditRepair #HomebuyerTips #FHA #VA #USDA #KHC #CreditScoreMatters #NMLS57916 #EqualHousingLender

How does consumer credit counseling effects things on a Kentucky FHA or USDA loan in Kentucky ?

 KENTUCKY FHA GUIDELINES FOR CONSUEMR CREDIT COUNSELING

(J) Credit Counseling/Payment Plan (APPROVE/ELIGIBLE)Participating in a consumer credit counseling program does not require a downgrade to a manual underwriting.No explanation or other documentation is needed.

 

(K) Credit Counseling/Payment Plan (MANUAL UW) Participating in a consumer credit counseling program does not disqualify a Borrower from obtaining an FHA-insured Mortgage, provided the Mortgagee documents that:

• one year of the payout period has elapsed under the plan;
• the Borrower’s payment performance has been satisfactory and all required payments have been made on time; and
• the Borrower has received written permission from the counseling agency to enter into the mortgage transaction.

 

 

KENTUCKY RURAL HOUSING USDA GUIDELINES FOR CONSUMER CREDIT COUNSELING 

CONSUMER CREDIT COUNSELING - DEBT MANAGEMENT PLANS

Credit counseling provides guidance and support to consumers which may include assistance to negotiate with creditors on behalf of the borrower to reduce interest rates, late fees, and agree upon a repayment plan. The credit score will reflect the degradation of credit due to participation in this plan. Credit accounts that are included in the repayment plan may continue to report as delinquent or as late pays. This is typical and will not be considered as recent adverse credit. Lenders must retain documentation to support the accounts included in the debt management plan and the applicable monthly payment. Lenders must include the monthly payment amount due for the counseling plan in the monthly liabilities. GUS Accept/Accept with Full Documentation files: No credit exception is required. GUS Refer, Refer with Caution, and manually underwritten files: The following must be documented and retained in the lender’s permanent loan file: •One year of the payment period of the debt management plan has elapsed; •All payments have been made on time; and •Written permission from the counseling agency to recommend the applicant as acandidate for a new mortgage loan debt. •No credit exception is required

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Joel Lobb
Mortgage Loan Officer

Individual NMLS ID #57916

American Mortgage Solutions, Inc.

10602 Timberwood Circle 

Louisville, KY 40223

Company NMLS ID #1364

click here for directions to our office

Text/call:      502-905-3708

fax:            502-327-9119
email:          kentuckyloan@gmail.com

https://www.mylouisvillekentuckymortgage.com/