Collections, charge-offs, and disputed accounts each have their own FHA treatment. Understanding the $2,000 threshold and the 5% rule can be the difference between an approval and a denial.
Under $2,000 total, collections can be ignored entirely — no payoff required.
Above $2,000, 5% of each collection balance gets added to your monthly DTI.
Non-mortgage charge-offs are excluded from DTI and don't need to be paid off.
Disputed derogatory accounts totaling $1,000+ trigger a mandatory manual underwrite.
Medical bills, old utility accounts, or small collections sitting on your credit report.
Non-mortgage debts that were written off — these don't block you the way people assume.
You're actively disputing an account and aren't sure how it affects your file.
These are the FHA (HUD 4000.1) rules I underwrite to. Conventional, VA, USDA, and Non-QM treat some of these situations differently — see below.
| Situation | Rule |
|---|---|
| Non-mortgage charge-offs | Excluded from DTI (qualify at $0/mo), no payoff required |
| Collections under $2,000 total | Can be ignored entirely — no payment counted, no payoff required |
| Collections $2,000+ total | Must be paid in full at/before closing, or on a verified payment plan (that payment counts in DTI) |
| The 5% rule | 5% of each outstanding collection balance is added to monthly DTI liabilities (when the $2,000+ threshold applies) |
| Disputed accounts $1,000+ | Automatic downgrade to manual underwrite — no automated approval allowed |
| Dispute exemptions | Disputes older than 24 months, or from identity theft/unauthorized use with a police report, are exempt from the downgrade |
Non-QM investors aren't standardized by Fannie, Freddie, or FHA, so guidelines vary — here's the general shape I see most often.
| Situation | Typical Non-QM rule |
|---|---|
| Approach | Non-QM programs are designed to bypass agency-style collection and dispute rules entirely — underwritten more on overall credit story, income, and reserves |
| Best fit | Borrowers with a strong income/asset picture but a specific credit blemish that doesn't fit FHA's automated thresholds |
VA has no minimum FICO of its own and focuses on your last 12-24 months of credit — a common-sense underwrite.
| Situation | VA rule |
|---|---|
| Minimum FICO | None set by VA itself — most lenders enforce a 580-620 overlay |
| Recent history focus | Underwriters weigh the last 12-24 months most heavily; isolated older issues are often ignored with a clean recent record |
| Collections over $2,000 | Pay down, or calculate 5% of the balance as a monthly DTI liability |
| Disputes | Non-medical disputed accounts with a balance may require a manual downgrade of the automated approval |
USDA leans hard on its automated GUS system — a clean "Accept" simplifies everything.
| Situation | USDA rule |
|---|---|
| GUS Accept/Eligible | Credit underwriting simplified — the automated approval carries most of the weight |
| Score below 640 / thin file | Manual underwrite required, with strict verification of 12 months of clean housing payment history |
| DTI on manual underwrite | Capped at 29% / 41% unless strong compensating factors are documented |
SONYMA leans on AUS approval but still requires real tradeline depth underneath it.
| Requirement | SONYMA rule |
|---|---|
| AUS finding | Must receive a DU or LPA Approve/Eligible |
| Tradeline depth | Minimum 3 active tradelines, each with at least 12 months of history — required regardless of AUS finding |
| Student loans | $0 payments calculated at 1% of balance for DTI; excludable only if a third party has paid it on time for 12 consecutive months |
Jumbo offers none of the leniency of government loans for recent credit events — Non-QM is the pivot.
| Situation | Jumbo rule |
|---|---|
| Recent credit events | Standard Jumbo declines outright — held in portfolio or sold to private aggregators with no automated leniency |
| The pivot | A NAF Portfolio (Non-QM) product is the alternative when a recent event disqualifies a standard Jumbo file |
Land loans set the highest credit floor and the strictest multi-bankruptcy rule of any program here.
| Requirement | Land Loan rule |
|---|---|
| Minimum credit score | 660 TransUnion; if two borrowers, both must be at least 600 |
| Multiple bankruptcies | Two or more bankruptcies makes you ineligible unless you've established at least 2 years of clean, re-established credit |
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