As of April 1, borrowers involved in disputes with creditors over debts of $1,000 or more may no longer qualify for FHA-insured loans. Even borrowers with perfect credit scores can be denied over a single $1,000 problem charge. Prior to this rule change, individual lenders decided whether debt disputes constituted grounds for denial. You could be disputing a charge, let's say a hospital bill, and your lender could still decide that your credit history merited approval. Now though, a lender will have to justify the approval to the FHA and back its decision with documentation.

Now, all collection or disputed accounts that TOTAL over $1000 will be required to be resolved either by payment arrangements with a minimum of 3 months receipt or paid off prior to closing. Collection accounts (whether disputed or not) which total $1000 or more will need to be settled prior to closing. And in case any one was looking for a loophole there, collections cannot get paid down to just below $1000 to qualify...HUD already planned for that.

Disputed accounts that go back more than two years, along with those related to fraud or identity theft, will not count against borrowers, according to the FHA, but lenders must provide evidence, such as police reports, that document client claims of identity thefts or fraud charges. Since no lender wants to hold a 96.5% mortgage held on their own books if the FHA rejects it, you can be certain that they will err on the side of caution when there is any doubt.

Travis Torcoletti IKON Finacial Group

(803) 381-5149