FHA Loan With 17 Debts and a House to Rent Out: A Real Closing, Start to Finish
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Most FHA articles list rules. This one shows a file.
A buyer came to us after other lenders would not take his loan. He wanted an FHA purchase loan of $476,000. His credit report had 17 small items that needed attention. Some were credit card balances and some were overdue bills. He was also moving out of a house he planned to keep as a rental.
The loan closed on time. His total out of pocket was $17,500, which covered his cash to close and the debts that had to be cleared. Here is how the file worked.
The FHA file at a glance
| Item | Detail |
|---|---|
| Loan type | FHA purchase loan |
| Loan amount | $476,000 |
| Debts to resolve | 17, each paid at closing or shown current |
| Complication | Moving out of a home to keep as a rental, supported by a signed lease |
| Result | Closed on time |
| Total out of pocket | $17,500, including cash to close and the debts paid |
Details are anonymized. Every file is different, and your result depends on your own credit, income, assets and property.
Why 17 small debts are harder than one large debt
An underwriter reads a credit report line by line. A $90 overdue bill gets the same attention as a $3,000 card balance. Each line is a question the underwriter can ask, and each answer needs a document.
Seventeen lines means seventeen chances for a late condition. A single missed payoff letter can push a closing date. The risk came from the count of items.
What FHA actually requires on collections and overdue accounts
FHA guidelines do not require every collection to be paid for approval. Based on HUD guidance, non-medical collections that total $2,000 or more are counted in your debt-to-income ratio, either at 5 percent of the balance or at the payment in a written arrangement with the creditor. Medical collections are excluded from that calculation. Disputed non-medical accounts of $1,000 or more can force a manual underwrite.
That is the FHA floor. A lender can set a stricter standard, and many do. On this file, every account had to be either paid at closing or shown current. The work was clearing the list.
If your lender gives you a different answer than an article you read, ask which part is FHA and which part is the lender's own policy. They are two different answers.
How a list of 17 closes on time
Seventeen items close on time when each one has an owner and a date. The approach is simple:
- Put every account on one sheet. Creditor, balance, status, and what proves it is resolved.
- Mark each one as pay at closing or show current.
- Order payoff figures and current statements early, because payoff figures expire.
- Check the sheet against the credit report again before final approval.
Nothing on that list is clever. The result comes from tracking every line until it is closed.
Keeping the old house as a rental
Moving out of a house you want to keep raises two questions. Does the rent count as income, and does the old payment count as debt?
Lenders typically count 75 percent of the lease rent and then subtract the full housing payment on the old house. Here is an illustration with made-up numbers. Rent of $2,000 counts as $1,500. If the payment is $1,700, the result is negative $200, and that $200 is treated as a monthly debt. If the payment is $1,200, the result is positive $300, and it can help.
On this file, a signed lease supported the rent. Documents and cushions vary by program and lender. A signed lease, proof of the deposit and sometimes an equity cushion are common requests. Ask early, because this item can reshape the whole approval. FHA financing is for a primary residence, so the new home must be the one you live in.
What it cost out of pocket
His total out of pocket was $17,500 on a $476,000 loan. That figure includes his cash to close and the debts that had to be paid. Your cash needs depend on the price, the loan amount, closing costs, seller credits and the debts you must clear. Use our closing cost calculator to estimate your own cash to close.
What you can take from this file
- Count the lines, not just the dollars. A long list of small items is its own risk.
- Ask which rule is FHA and which is the lender. The answers can differ.
- Decide about the old house before you write the offer. The rent math can change what you can afford.
- Start the paperwork early. Payoff figures and statements have dates on them.
If you are moving from a home you want to keep, read our guide to buying before you sell in Alabama and Florida. For the full rules, see our FHA loans in Alabama and Florida page and the companion article on FHA loan requirements in Alabama and Florida. To stretch your cash, read about cost stacking. New to buying? Start with first-time homebuyer programs.
Get a quote for your FHA purchase.
Frequently asked questions about FHA loans with debts and rentals
Can I get an FHA loan with collections or overdue accounts?
Often yes. FHA guidelines do not require every collection to be paid for approval, but non-medical collections that total $2,000 or more are counted in your debt-to-income ratio. Lenders can add stricter rules, so ask your lender which standard applies.
Do I have to pay off collections before closing on an FHA loan?
Not under the basic FHA guideline. Some lenders require it anyway. In the case above, every account was paid at closing or shown current.
Can I keep my current home as a rental when I buy with an FHA loan?
Often, yes. Lenders typically count 75 percent of the lease rent and subtract the full payment on the old house. Some require a signed lease, proof of the deposit or an equity cushion. The new home must be your primary residence.
How much cash did this buyer need?
Total out of pocket was $17,500 on a $476,000 FHA loan, including cash to close and the debts that had to be paid. Your amount will differ based on price, costs, credits and debts to clear.
Example based on a real closing with identifying details removed. Results vary. This is not a commitment to lend. Loan approval depends on credit, income, assets and property. Mountain Mortgage NMLS #2720886 | Paul Leara NMLS #2233772. Equal Housing Lender. Licensed in Alabama and Florida.