When it comes to mortgage financing, not all loan programs handle credit challenges the same way. One area where this is particularly true is how judgments are handled. We will break the rules for conventional and FHA loans when the borrower has outstanding judgment.
Conventional Loans: Strict Requirements
For traditional financing, the rules are clear and absolute:
- All judgments must be paid in full prior to or at closing.
- No exceptions are allowed.
This means that if a borrower has a pending judgment, they must completely resolve that issue before they can close a conventional loan.
FHA Loans: A More Flexible Way
The FHA provides a more flexible path for discretionary borrowers, but only if certain conditions are met:
- The borrower must enter into a written payment plan with the creditor.
- Payment must be made at least three consecutive months prior to the deadline.
- Prepayments three months in advance don’t count; the FHA requires actual payment history over time.
touch At MortgageDepot, we’ll connect you with a loan officer to discuss your financing options.
