Anthony Almost Lost His Home Purchase Over a Debt FHA May Not Count
Anthony almost lost his house purchase over a debt the FHA guideline says may not count against him at all. Anthony is a fictional example, but a situation that comes up often is a buyer near Batesburg-Leesville who pays an account with a full balance due every month and wonders whether it counts in his debt-to-income ratio.
The worry behind the question
Anthony is using an FHA loan. He has a steady routine: one account, balance paid in full each month. When he sees the account on his credit report with a balance, he assumes a lender will count it as debt and that his DTI will be too high to qualify. That assumption can scare a buyer away from a home or lead them to pay down savings they need for closing.
The frustrating part is that he may be worrying about something the guideline treats very differently from an ordinary installment debt.
What the FHA guideline says
The rule sits in HUD 4000.1, Section II.A.4.b.iv.K, and it covers what FHA calls 30-Day Accounts. Here is the text:
"The Mortgagee must verify the Borrower paid the outstanding balance in full on every 30-Day Account each month for the past 12 months. 30-Day Accounts that are paid monthly are not included in the Borrower's DTI. If the credit report reflects any late payments in the last 12 months, the Mortgagee must utilize 5 percent of the outstanding balance as the Borrower's monthly debt to be included in the DTI."
Reading the rule in plain terms
There are three pieces here, and each one matters.
First, the lender has to verify. It is not enough for Anthony to say he pays the balance in full. The Mortgagee must verify that he paid the outstanding balance in full on every 30-Day Account, every month, for the past 12 months.
Second, if that verification holds up, the account is not included in his DTI. That is the part that can turn a worrying number into no number at all.
Third, there is a consequence for lateness. If the credit report reflects any late payments in the last 12 months, the lender must use 5 percent of the outstanding balance as his monthly debt in the DTI. So the same account can be left out entirely or counted at 5 percent of the balance, and the difference is the payment history over the past 12 months.
Where Anthony could go wrong
The biggest risk is not knowing which side of the line he is on. If he assumes the account counts, he may talk himself out of a purchase he could qualify for. If he assumes it is excluded without checking his credit report for lates, he may be surprised when the lender applies the 5 percent figure.
The other risk is paperwork. Because the lender has to verify the payment history, Anthony needs documentation, not just a good memory.
What to ask and what to bring
Here is the question I would put to any lender, and it is the same one Anthony should ask:
"Do I have any 30-Day Accounts on my credit report? Under FHA Section II.A.4.b.iv.K, are you treating them as paid monthly and leaving them out of my DTI, or are you using 5 percent of the balance?"
Then request the past 12 months of statements for each 30-Day Account showing the balance paid in full each month. Those statements are the evidence that supports the exclusion.
How I help
I am Jason Sharon, a licensed mortgage broker since 2015, and my brand promise is simple: I find the path. When a buyer tells me about an account they pay off monthly, my first step is to see whether it is a 30-Day Account, check the last 12 months of history, and gather the statements before anyone assumes the worst.
If you are an FHA buyer in the same spot as Anthony, call me at 843-LOW-RATE or visit homeloansinc.com. I will walk you through it.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
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