When it comes to mortgage financing, not all loan programs treat credit challenges the same way. One area where this is especially true is how judgments are handled. We’re breaking down the rules for Conventional vs. FHA loans when a borrower has outstanding judgments.
Conventional Loans: Strict Requirements
For Conventional 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 if a borrower has an outstanding judgment, they must resolve it thoroughly before they can close on a Conventional loan.
FHA Loans: More Flexible Approach
FHA offers a more flexible path for borrowers with judgments, provided certain conditions are met:
- The borrower must enter into a documented payment plan with the creditor.
- At least three months of consecutive payments must be made before the closing date.
- Pre-paying the three months in advance does not count; FHA requires an actual payment history over time.
Contact MortgageDepot, and we’ll connect you with a loan officer to discuss your financing options.
