Home Loan With Mortgage Charge Off Lending Guidelines

This BLOG On Home Loan With Mortgage Charge Off Lending Guidelines Was UPDATED And PUBLISHED On May 27, 2025.

Are you trying to buy a home but have a mortgage charge off showing up on your credit report? You’re not alone. Many borrowers face this issue and wonder: Can I still get a mortgage? The good news? Yes, qualifying for a home loan with a mortgage charge-off is possible if you meet the proper lending guidelines. In this updated 2025 guide, we’ll explain the mortgage charge off lending  guidelines, how it affects your ability to get a new loan, and what lenders look for when reviewing your application.

What Is a Mortgage Charge Off?

A mortgage charge-off happens when a lender gives up on collecting a past-due mortgage balance and writes it off as a loss on their books. But here’s the catch, you still owe the debt, a charge off does not mean it’s forgiven. Charge-offs usually happen after 120 to 180 days of missed payments, and they show up as derogatory marks on your credit report. This can drop your credit score and scare off traditional lenders.

Can You Buy a Home With a Mortgage Charge-Off?

Based on home loan with mortgage charge off lending guidelines, you can still qualify for a home loan, but you’ll need the correct type of lender and must meet specific guidelines. Most banks and traditional lenders will deny your application. Still, non-QM lenders and some government-backed loans (like FHA and VA) offer second chances.

Home Loans with Mortgage Charge Off Lending Guidelines

FHA Loan Guidelines

• Waiting Period: No waiting period if the charge-off is from a non-mortgage account.
• Mortgage Charge-Offs: FHA allows mortgage charge-offs if the loan is not tied to a foreclosure. If there was a foreclosure tied to the charge-off, the waiting period is 3 years from the date of title transfer. Manual Underwriting is available if the file doesn’t get automated approval.
• Credit Score Requirement: 500+ (with at least 10% down); 580+ (for 3.5% down).
  Collections/Charge-Offs Do Not Have to Be Paid Off in most cases.

VA Loan Guidelines

• Waiting Period: 2 years from foreclosure/charge-off date.
• There is no required Minimum Credit Score by the VA (but lenders typically require 580–620+).
• Compensating Factors like low DTI, reserves, or strong rental history can help.
• VA guidelines do not require the charge-off to be paid.

USDA Loan Guidelines

• Waiting Period: 3 years from the charge-off or foreclosure.
• A clean housing history is required.
• Charge-offs and collections must be documented and explained.

Conventional Loan Guidelines (Fannie Mae/Freddie Mac)

• Waiting Period: 4–7 years, depending on the severity and whether foreclosure was involved.
• Must show re-established credit with no late payments in the last 12 months.
• Charge-offs from previous mortgages usually disqualify you from conventional loans within the waiting period.

Non-QM and Portfolio Loans

• No waiting period is required in some cases.
• Lenders base approval on the following: Bank statements (no tax returns required), Equity or down payment (20%+ often needed)
• DSCR (Debt Service Coverage Ratio) which shows if the rental income of a property rental income can cover the mortgage payment.
• Ideal for self-employed, recent credit events, or borrowers with unique income.

Mortgage Charge Off Lending Guidelines

There are strict rules and regulations in qualifying for a home loan with mortgage charge off with waiting period requirements. Under HUD’s FHA Guidelines, borrowers do not have to pay off collection accounts and charge off accounts with the outstanding balance. HUD, the parent of FHA, categorizes collection accounts into two categories Medical Collections, Non-Medical Collections.

How Lenders Treat Derogatory Tradelines

Charge off accounts and medical collection accounts are treated the same. Both of these two types of derogatory accounts are exempt from debt to income calculations. This is no matter how much the outstanding balance is. However, with non-medical outstanding collections with over $2,000 in outstanding balances, FHA requires that 5% of outstanding balance needs to be calculated as hypothetical monthly debt in DTI Calculations. Borrowers can have credit disputes on medical collections non-medical collection accounts with zero outstanding balances.

Credit Disputes Mortgage Guidelines

Borrowers are allowed to have credit disputes on non-medical outstanding collection accounts up to a total aggregate amount up to $1,000. Any amounts over the aggregate $1,000 in total outstanding non-medical collection balance need to have the credit disputes retracted for the mortgage application process to proceed. Otherwise, the loan file needs to be downgraded to a manual underwrite. One risk with retracting disputes is once it is retracted, credit scores will drop. May no longer qualify for a home loan if it drops below the minimum credit score requirements. As mentioned earlier,  FHA allows credit disputes on medical collections no matter of the amount. However, cannot have credit disputes on charged offs and non-medical collection accounts.

Mortgage Waiting Period Guidelines

HUD Waiting Period Guidelines are as follows:

• Two year waiting period after Chapter 7 Bankruptcy discharged date to qualify for FHA and VA Loans
• Home Buyers can qualify for FHA and VA Home Loans one year into a Chapter 13 Bankruptcy Repayment Plan
• There is no waiting period requirement after Chapter 13 Bankruptcy discharged date on FHA and VA Home Loans
• There is a three-year waiting period to qualify for FHA Loans after housing event (foreclosure, deed in lieu of foreclosure, short sale)
• The U.S. Department Of Veteran Affairs (VA) requires a two year waiting period after housing event
• Charge off accounts on second mortgages or mortgages are treated differently than regular charge off accounts

The waiting periods for a home loan after mortgage charge off is similar to all mortgage programs.

HUD’s Mortgage Charge Off Lending Guidelines

HUD’s mortgage guidelines in qualifying for a home loan after mortgage charge off is the following, no waiting period in qualifying for a home loan with mortgage charge off IF there is no lien on a property, three years from the date of the charge off account reported on the borrower’s credit report if there is a lien on a property, the rules are the same for a primary mortgage as well as second mortgage charge off accounts. Fannie Mae and Freddie Mac have a mandatory 7-year waiting period to qualify for a conventional home loan after mortgage charge off.

What Does A Charge Off Account Mean?

Consumers with a charge off do not mean they are relieved of the outstanding debt. A charge off means that the lender, whether it is a first position lender and/or second mortgage lender, has written off the debt off their books and deemed it as uncollectible debt. If the consumer owns a property and the lender wrote off a second mortgage as a charge off, then the property will have a lien from the second mortgage. The lender who charged off the debt can always try to collect the debt until the statute of limitations has expired. It is extremely rare that creditors who charge off consumer debt, including mortgage charge offs, will go after bad debt as time passes.

How Does Charge Off Report On Credit Report?

Most charged-off accounts report with a balance with it on consumer’s credit report, including second mortgages, do not have to be paid off. Many loan officers do not realize outstanding collection/charged offs do not have to be paid off including second mortgage charge offs. They normally tell their clients they do not qualify unless they get a zero balance statement. No lender will issue a statement and/or letter to a consumer with a charged-off the mortgage that consumers are no longer liable. Again, if loan officers do not qualify borrowers for home loan with mortgage charge off due to the outstanding balance on the credit report, they are wrong and get a second opinion.

Frequently Asked Questions (FAQ’s): Mortgage Charge Off Lending Guidelines

What is a mortgage charge-off?

It’s when the lender writes off your mortgage debt as a loss. You still owe the money, and it harms your credit.

Do I need to pay off the charge-off to qualify?

Usually not especially with FHA, VA, and non-QM loans.

Can I get a loan after a mortgage charge-off from years ago?

Yes, if you meet the waiting period and other requirements.

Does a charge-off mean foreclosure?

Not always. A mortgage can be charged off without foreclosure, but many are related.

Will the charge-off stop me from buying again?

Not if you apply with the right lender. Non-QM and FHA lenders are flexible.

How does a charge-off affect my credit?

It can significantly lower your score. Lenders will still look at your recent payment history.

Can I use a co-borrower to qualify?

Yes, especially if the co-borrower has better credit or more substantial income.

What if the charge-off is still listed as unpaid?

That’s okay for most government-backed loans. You don’t need to pay it off unless it’s a judgment or lien.

How soon can I buy again after a mortgage charge-off?

2–3 years for FHA/VA, 4–7 for conventional, and no waiting period with some non-QM lenders.

Should I talk to a lender before fixing my credit?

Yes, some changes might hurt more than help during the loan process. Always talk to a lender first.

Home Buyers who are told they do not qualify for a home loan with mortgage charge off or other overlays by a lender, and if you have further questions about home loan with mortgage charge off lending guidelines, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. We are national direct lenders with no overlays on government and conventional loans and can help borrowers secure a home loan with mortgage charge off accounts. We are available 7 days a week, evenings, as well weekends and holidays. You can also email us at gcho@gustancho.com.