Short answer
Often, yes. Under HUD's Handbook 4000.1, charge-offs don't have to be counted in your debts, and medical collections aren't treated as debt. If your non-medical collections add up to $2,000 or more, they must be paid off, put on a payment plan, or counted in your debt ratio. A court judgment must be paid or resolved by closing, which can include a payment plan with at least three months of on-time payments.
How does FHA treat collection accounts?
When the automated review shows collection balances totaling $2,000 or more, the lender must do one of three things:
- Verify the debt is paid in full at or before closing with acceptable funds.
- Verify you have a payment arrangement with the creditor and count that payment in your debt-to-income ratio.
- If no arrangement is available, count a payment of 5 percent of each collection's balance in your ratio.
Medical collections are on HUD's list of obligations not considered debt.
What about charge-offs?
HUD says charge-off accounts, debts the creditor has written off, don't need to be included in your liabilities. On an automated approval, the lender also isn't required to get a written explanation of collections, charge-offs, late payments or judgments.
What if I have a judgment?
A court-ordered judgment must be paid off or resolved at or before closing. It counts as resolved if you have a valid agreement with the creditor for regular payments, you've made at least three months of scheduled payments on time (prepaying doesn't count), and the judgment won't take priority over the FHA mortgage. The agreed payment is counted in your debts. For conventional loans, see collections and judgments before a mortgage.
What if I'm disputing an account?
If the credit report shows $1,000 or more in disputed derogatory accounts (disputed collections, charge-offs or recent late payments), the loan must be underwritten manually instead of by the automated system. Disputed medical accounts and accounts disputed because of identity theft, with a police report or creditor documentation, don't count toward that amount. See disputed accounts on your credit report.
What should I do first?
Pull your credit reports and list every collection and judgment before you apply. Don't pay off old accounts in a rush before talking with Tom; how you handle them can depend on the loan. See the FHA loan guide and credit and your mortgage.
Sources
Checked November 2, 2026. Rules and dates change, so confirm current details before you rely on them.
General information only, not tax or legal advice. Program availability, eligibility and terms vary by lender and are subject to change and to underwriting approval. Not a commitment to lend.