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Can I get an FHA loan with unpaid medical collections?

Got ill in 2005, almost died. Spent 21 days in ICU and more after that in recovery. Racked up almost $300,000 in uninsured medical bills. Worked full time before and after but employer does not offer health insurance if you were wondering. They show on credit report as collections, for whatever reason they are not charged off. 

They have made no attempt to collect since 2005 and I have paid none. Was in negotiations to get help from a non-profit but I guess the fact that I actually work for a living disqualified me from assistance. Credit score prior to illness was high 700 to low 800. Current credit scores are 640/656/677. 4 active credit cards with $2000 limits and zero balances, Youngest was opened 2006 oldest was opened 1998. Active car loan opened for $34,000 in 2007, current balance $11,000. No late payments on anything ever. Current income is $60,000 / year salary with w-2 and 2008, 2009 tax returns to match. Only debt is car payment of $388 / month and rent of $1900. Looking to buy a house for $185,000 with FHA 3.5% down. Can it be done?
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October 04 2010 - Hercules
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In AZ the statue of limitations on collection ends on year 3. If it has been over three years not very many lenders will care about those collection. Remember lenders care about themselves and the property they will soon finance. Once over three years no collection can attach itself on a residence because it's illegal and that is what lenders truly care about. The reason you might have a lower fico score is maybe not enough good debt to drive up that score. Get a secured credit card and you will probably see some positive movements

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November 08 2010
John, that is incorrect information.

It's true that unlike credit cards or loans, medical bills that ARE NOT in collections or for which you have a payment plan do not (should not) appear on your credit report. However, if left unpaid, the hospital or doctor's office that you owe may eventually send it to a collection agency. Collection agencies often report medical debts to the credit bureaus. Collection accounts of any type are detrimental to your credit score. Although medical collections are weighted differently, they still have an impact and according to the Fair Credit Reporting Act, can remain on your report for up to seven years. As witnessed by the Op's credit score, if it were any other type of collection totaling $300,000, their FICO would be virtually incalculable with that amount in unpaid collections.
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November 07 2010

If the collections are reporting to the credit bureau as "medical collections" the affect they have on your credit score will be little if any. "medical collections" are reported to the bureaus, but since they are medical the credit bureau scoring model doesnt include them in the score calculation.

Its VERY critical that the collections are being reported as medical if they are medical. Collections of any other type are VERY negative and will seriously affect your score.

I owned a mortgage credit bureau for 20 years. I know how the scores are calculated. There must be some other reason your scores have dropped.

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November 07 2010
DO NOT contact the creditor and try for settlement.  If you have been dormant for over 2 years leave it alone.  Once you even contact them on the phone and ask a question they can "re-activate" the collection and it will show current...and your scores will go down.  REPEAT, do not contact them.  Attorney is a good first step, just for future protection from a suit, but not as a settlement conduit.

This is not an impossible deal to do.  It may cost $20 for a credit report, but you can get it analyzed by underwriting pretty quickly.
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November 03 2010
no lender is gonna give you a mortgage with 300k in collections. i would be shocked if you got a DU approval! your only shot is to wait out these collections for two or more years, dispute the derogatory tradelines, and wait for them to be deleted. negative info can only be reported for seven years from when they first reported it, so once they become outdated, they have to be deleted. if what u say is true, i would wait these collections out. rates and home prices are gonna remain low for some time. btw, i personally negotiated a hospital bill of $40k down to $5k. thats a little more than 10 cents on the dollar.
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November 01 2010
My friend,
You have been through quite an ordeal...21 days in ICU!

Your situation is very, very unique.

A) Celebrate Life!

B) get legal counsel on the EXACT potential repercussions of:
     i) continue doing nothing
     ii) trying to negotiate a settlement for pennies on the dollar

C) Then decide if you wish to go forward in trying to obtain home financing.

D) No matter what the end result...continue to Celebrate Life!

Best wishes,
Steve
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November 01 2010
As this still seems to be an active thread, one question that should be asked is has the hospital sued you in an attempt to collect the debt?

If they haven't attempted to collect the debt, it's possible that the statute of limitations has lapsed and the hospital may not longer be able to collect that debt.

Unfortunately I'm not an attorney, so BEFORE you make a payment on this debt, CALL AN ATTORNEY. By making a payment on this past debt, you may be resetting the clock on the debt, which could allow the hospital to sue you.
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October 28 2010
I 100% agree with Erez on this one and think Deborah's advice is malpractice. By negotiating on a 300K collection that is not actively being collected is a recipe to give this person a 495 credit score and no possible chance to buy anything. I would throw her out of the office for giving bad advice. I bet she would originate a loan for someone that defaulted on a 300K mortgage 5 years ago! 

You should peruse this, you will most likely get a DU Approve/Eligible and there are lenders that will approve this for you. Your job history, income, credit score all work so all you need is the right person to put the other pieces together for you. 

Don't give up, it can be done.
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October 28 2010

I am in agreement with others here that indicate concerns about the amount of the collections.  300k is a very large number.

I think the loan could be possibly be done.  If you found a lender that will underwrite to Desktop Underwriter findings you may have a better chance as  there is a decent chance that you can get an automated approval from Desktop Underwriter.

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October 28 2010
I do a huge amount of FHA loans-  High medical bills do not stop you from getting financing-  even with 300K in medical collections.  The reason you can still get financing is because the collection of $300K occurred around 2005 -2006.  The lender would be concerned if this just occurred as they are worried about potential judgements that would then affect your home.  In this case, no judgement proceeding has occured and FHA would in fact insure this loan.  This loan would pass the muster so long as your Debt to Income is in check and we recieve a FHA DU Approval.
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October 28 2010
Hey Need a break.  have you talked with anyone yet?  My suggestion is find someone that is willing take on the challenge, it is possible, but the chances are not high.  I am not sure where you live, but I would love to help if I can, I love challenges so if you want to talk about it, visit my profile and shoot me an email.  I have colleagues I could refer you to if I am not licensed in your state.

Thanks

Kris
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October 28 2010
I think my underwriter would throw me out of the office if I tried to get him/her to sign off on 300K of collections.  Medical or not.  I would recommend contacting creditors and negotiating a settlement...at this point they would take pennies on the dollar.  Document the heck out of it...get everything in writing and keep scrupulous records.

I would work with and counsel a consumer in this situation, but I would not originate the loan until the plan was in place....
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October 28 2010
Medical collections are usually forgiven on FHA but this is such a high amount. You would have to write a really good letter of explanation, but this would most certainly be scrutinized by the lender. Good luck...you can always try!
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October 27 2010
Profile picture for NeedABreak
No I have not paid it. We were working to get assistance but since I make more than whatever they determined the minimum is, I was not able to get the assistance. They are not even trying to collect it, it's just been sitting on my report since 2005. I cannot file bankruptcy or I would lose my job so that is not an option. I guess I'll just have to go have 17 kids, start smoking meth and live in a box on the street and then would qualify for free healthcare and housing. This is the only country in the world where getting sick and being the working uninsured can financially ruin you. It sickens me to see all the people walking away from $300,000 obligations that they signed up for and able to buy houses after and I still cannot. What a great country!
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October 04 2010
Profile picture for wetdawgs
Are you saying that with $300,000 medical debt you've not paid any of it nor worked with the providers to negotiate what it takes?

If I were a lender, I'd run the other way.
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October 04 2010
NeedABreak - I've been doing FHA loans a long time and I've never seen a lender look past that amount of medial collections.  Maybe a couple of thousand but not on the  level you are talking about.

The main issue is that the lenders will assume you will have to file Bankruptcy at some point to clear all those collections, and they don't want to get dragged into that.
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October 04 2010
Typically medical debt isn't looked at that hard.

I started to say the same thing this morning; until I saw that it's $300,000 in collections. I thing any lender is going to look real hard at that.
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October 04 2010
Typically medical debt isn't looked at that hard.  There may be lenders who will require payoff, so the short answer to your question is it depends on the lender.  Your best bet is to speak with a mortgage professional to get the answers you seek.  
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October 04 2010
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Anyone?
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October 04 2010
 
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