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
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.
- 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:
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.
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.
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.
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.
Give your credit report time to update (30-45 days minimum). Applying immediately after removing disputes looks suspicious to underwriters.
Frequently Asked Questions
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:
- Pull your credit reports this week and identify any disputed accounts
- Calculate your disputed derogatory total to understand where you stand
- Schedule a free consultation with an experienced FHA loan officer to review your specific situation
- 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.
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
