When it comes to securing a mortgage, understanding the nuances between different loan types can make a significant difference in your approval process. At MortgageDepot, we aim to provide you with the knowledge you need to navigate these complexities. One such area where loan types differ is in their treatment of judgments. Did you know that Conventional and FHA loans have distinct requirements for handling judgments? It’s true!
Conventional Loans: Fannie Mae and Freddie Mac
For those looking to secure a conventional loan, the rules are quite stringent. Both conventional government agencies Fannie Mae and Freddie Mac require that any outstanding judgment be paid in full either at or before the closing of the loan. Additionally, the source of the funds used to pay off the judgment must be verified. This means that if you have an outstanding judgment, you’ll need to settle it completely and provide documentation proving where the payoff money came from before you can close on your new home.
FHA Loans: More Flexible Options
On the other hand, FHA loans offer a bit more flexibility when it comes to handling judgments. Unlike conventional loans, FHA loans allow for an outstanding judgment to remain open under certain conditions:
1. Payment Plan Established: You must have a formal payment plan in place for the judgment.
2. Three Months of Payment History: You need to have made at least three payments under this plan.
3. Subordination: The judgment must be subordinated to the mortgage, meaning it takes a lower priority compared to the mortgage in case of default.
This flexibility can be a game-changer for many potential homeowners who may have an outstanding judgment but are otherwise financially stable and capable of making regular payments.
Why This Matters
Understanding these differences is crucial for anyone navigating the mortgage landscape. If you have an outstanding judgment, knowing that FHA loans offer more lenient terms could be the key to securing your dream home. Conversely, if you’re aiming for a conventional loan, you’ll need to be prepared to settle any judgments in full before moving forward.
At MortgageDepot, we’re here to help you understand these complexities and find the best mortgage solution for your unique situation. Whether you’re dealing with judgments or any other financial hurdles, our team of experts is ready to guide you every step of the way.
For more information on how we can assist you with your mortgage needs, contact MortgageDepot today!