Naomi Almost Lost Her Folly Beach Cottage Over Debt That Wasn't Debt
Naomi almost lost her contract on a cottage near Folly Beach because her debt to income ratio was pushed three points too high by obligations that should never have been counted against her in the first place.
Naomi is a freelance graphic designer and single mom. Her income was solid and her file was otherwise clean, but when the numbers came back, her DTI was three points over where it needed to be. That's the kind of gap that can quietly kill a contract if nobody catches it in time.
What Was Actually Happening
When we pulled her credit report apart line by line, the problem became clear. Her file was counting medical collections, her child care payments, union dues, and a credit card sitting at a zero balance as active monthly obligations. Every one of those items was inflating her ratio, and none of them should have been in the calculation at all.
This is a situation that comes up often with FHA files. Certain obligations get pulled onto a credit report and treated like any other debt, when FHA guidelines specifically say otherwise.
What HUD 4000.1 Actually Says
The rule is spelled out in HUD's Single Family Housing Policy Handbook. It reads:
"Obligations not considered debt include: medical collections; federal, state, and local taxes if not delinquent and no payments required; automatic deductions from savings when not associated with another obligation; FICA and other retirement contributions such as 401(k); collateralized loans secured by depository accounts; utilities; child care; commuting costs; union dues; insurance other than property insurance; open accounts with zero balances; voluntary deductions when not associated with another obligation."
That's not a loose guideline open to interpretation. It's a specific, named list, and it directly covered four of the items sitting on Naomi's file.
How the File Got Fixed
We went through every line on her credit report and checked it against that exact list. The medical collection came off. The child care payment came off. The union dues came off. The zero balance account came off. Once those were correctly excluded, her DTI dropped back into range and her contract on the cottage stayed alive.
What You Can Do With This Today
If you're working through an FHA file and your DTI looks higher than it should, don't assume the number is final. Ask your loan officer to check every item on your credit report against FHA Section II.A.4.b.iv.Q, Obligations Not Considered Debt, before your DTI gets finalized. Specifically flag medical collections, utilities, child care, union dues, 401(k) contributions, and any open accounts sitting at a zero balance.
These items get miscounted more often than buyers realize, and catching them early can be the difference between a denial and a closing.
If your ratios look off or you're not sure what's being counted against you, I'm happy to take a look. I'm Jason Sharon, a licensed mortgage broker at Home Loans Inc, and I find the path even when a file looks stuck. Call 843-LOW-RATE to talk through your numbers.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: Naomi Almost Lost Her Folly Beach Cottage Over Debt That Wasn't Debt