Not every credit issue affects your mortgage application the same way. While late credit card payments, bankruptcies, and foreclosures receive most of the attention, several other credit events can significantly impact your ability to qualify for a home loan. And types of mortgages also play a role. For instance, Jumbo Financing has a pretty strict and no tolerance. Non-QM is way more lenient. As are VA and FHA vs Conventional. Below is kind of broad-stroked, but we will do our best to explain.
Here’s how underwriters typically evaluate five of the most common issues.
1. Medical Collections
Medical collections are one of the most common derogatory items found on credit reports. Millions of Americans have experienced medical debt due to unexpected illnesses, injuries, or insurance disputes. As of January 2026, Credit Ninja reports about 41% of Americans—roughly 72 million people—have medical debt or are struggling with medical bills.
Recognizing that medical debt often differs from traditional consumer debt, the mortgage industry and credit scoring models have reduced its impact in recent years. Many newer FICO® scoring models place less emphasis on medical collections and paid medical collections generally have less impact than they once did. If you have a medical collection, speak with your mortgage pro, before arbitrarily just paying this off.
From an underwriting standpoint, medical collections are often treated more favorably than other collections. Depending on the loan program and lender, they frequently do not have to be paid before closing. However, if repayment is required or the borrower is on a payment plan, the monthly obligation may need to be included in the debt-to-income ratio.
2. Student Loan Collections
Student loan collections receive much closer scrutiny because they often involve debt owed to or guaranteed by the federal government. And since most mortgages are currently guaranteed by the federal government, they are going to want resolution or remediation before they enter into a new obligation.
If federal student loans are in default or collections, lenders generally require borrowers to:
- Trace the current collection all the way back to the original credit, making sure the debt is owed or has been resolved.
- If still owed, resolve the default.
- Or enter an approved repayment or rehabilitation agreement, if applicable.
- And demonstrate an established payment history—often at least three consecutive payments under the agreement before closing, depending on program guidelines and lender requirements.
The required monthly payment must typically be included when calculating debt-to-income ratios.
This issue is particularly important for FHA and VA Financing, where unresolved federal debt or delinquent federal obligations can prevent loan approval until the default has been resolved. Even if not on credit, FHA and VA can pick these unresolved debts up on QC Systems. So it’s always best to disclose upfront, anything outstanding or hanging out there.
3. Charge-Offs
A charge-off occurs when a creditor determines that a debt is unlikely to be collected and writes it off for accounting purposes.
Although the debt still exists and collection activity may continue, the original creditor has stopped treating it as an active receivable.
From an underwriting perspective, charge-offs are generally not counted as recurring monthly debt because there is no scheduled payment. Instead, the overall credit profile—including the existence and severity of charge-offs—is evaluated through the automated underwriting system, such as Desktop Underwriter (DU) or Loan Product Advisor (LP).
Some loan programs or lender overlays may still require large outstanding charge-offs to be addressed before closing. But in its entirety, I personally fight each charge-off as a no-harm to the consumer or debt obligation, since the creditor has already received the final outcome – the accounting benefit. So having the right mortgage consult, could save you alot of money here and probably avoid a massive sore subject for you as the consumer.
4. Tax Liens and Judgments
Public records such as tax liens and civil judgments generally no longer appear on the three major credit bureau reports or directly affect most modern FICO® scores.
However, they remain extremely important during mortgage underwriting.
Tax Liens
If a tax lien exists, lenders generally require one of the following before closing:
- The lien is paid in full.
- The borrower enters into an acceptable repayment agreement and has made the required number of timely payments, often at least three.
- The monthly payment is included in the debt-to-income ratio when applicable.
It’s also important to distinguish between simply owing taxes and having a recorded tax lien. The underwriting treatment may differ depending on the circumstances.
Outstanding judgments are reviewed by both the lender and the title company.
Depending on the situation, a judgment may need to be:
Judgments
- Paid before closing.
- Bonded or otherwise resolved under applicable legal procedures.
- Cleared as a condition of obtaining title insurance.
Every judgment is evaluated individually.
5. Mortgage Credit
If there’s one area of credit that receives the greatest attention, it’s your mortgage payment history.
A history of paying your housing payment on time demonstrates your willingness and ability to manage the very obligation you’re requesting.
Mortgage late payments can be the proverbial “kiss of death” for a new mortgage application.
Many Conventional, Jumbo, and Non-QM Programs require no mortgage late payments during the previous 12 months, with some programs looking back 24 months.
Certain FHA, VA, USDA, and other Non-QM Programs may permit:
- One 30-day late payment within the past 12 months, or
- Two 30-day late payments within the past 24 months,
provided all other underwriting requirements are met.
However, more serious housing delinquencies—including:
- 60-day late payments,
- 90-day late payments,
- Loan modifications due to default,
- Active foreclosure proceedings,
will often make a borrower ineligible until the applicable waiting period has passed.
Final Thoughts
Not every derogatory credit item is treated equally. Medical collections may receive relatively favorable treatment, while unresolved student loan defaults, tax liens, and recent mortgage late payments can significantly affect your ability to qualify.
The best approach is to review your credit before beginning your home search. An experienced mortgage professional can identify potential issues early, explain how each loan program treats them, and develop a strategy to improve your qualification before you submit an offer on a home in the Temecula Valley.
