Does Freddie Mac Require Medical Collections to Be Paid Off?
Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, is a government-sponsored enterprise that plays a significant role in the secondary mortgage market. As a mortgage lender, Freddie Mac has specific guidelines and requirements for borrowers, including the handling of medical collections. One common question among borrowers is whether Freddie Mac requires medical collections to be paid off before approving a mortgage application. In this article, we will explore this topic and provide insights into Freddie Mac’s stance on medical collections.
Understanding Medical Collections
Medical collections refer to debts that have been sent to a collection agency due to unpaid medical bills. These debts can arise from various healthcare services, including hospital visits, doctor appointments, and prescription medications. When a borrower has medical collections on their credit report, it can affect their credit score and potentially impact their mortgage approval.
Freddie Mac’s Policy on Medical Collections
Freddie Mac does not require medical collections to be paid off before approving a mortgage application. However, the presence of medical collections on a borrower’s credit report can still affect their eligibility for a mortgage. Here’s what borrowers need to know:
1.
Debt-to-Income Ratio
Freddie Mac considers a borrower’s debt-to-income (DTI) ratio when evaluating mortgage applications. If a borrower has high medical collections, it may increase their DTI, making it more challenging to qualify for a mortgage. Lenders typically prefer a DTI ratio of 43% or lower, but this can vary depending on the borrower’s creditworthiness and other factors.
2.
Minimum Credit Score
Freddie Mac requires a minimum credit score of 620 for most conventional mortgages. While medical collections may not directly impact the credit score, they can contribute to a lower score if the borrower has other negative items on their credit report. A lower credit score can limit the borrower’s mortgage options and potentially result in higher interest rates.
3.
Explanation of Medical Collections
Borrowers are encouraged to provide an explanation for any medical collections on their credit report. This can help lenders understand the circumstances surrounding the debt and potentially improve the borrower’s chances of mortgage approval. It’s important to be honest and transparent when explaining medical collections.
4.
Debt Resolution
While Freddie Mac does not require medical collections to be paid off, it’s still advisable for borrowers to resolve any outstanding debts before applying for a mortgage. Paying off medical collections can improve the borrower’s credit score and potentially lead to better mortgage terms.
Conclusion
In conclusion, Freddie Mac does not require medical collections to be paid off before approving a mortgage application. However, borrowers with medical collections on their credit report should be prepared to address potential concerns from lenders. By maintaining a low DTI ratio, improving their credit score, and providing an explanation for medical collections, borrowers can increase their chances of securing a mortgage approval. It’s always a good idea to consult with a mortgage professional to understand the best strategies for your specific situation.
