No, not always: FHA, VA and Fannie Mae let some collection accounts stay unpaid, and the Freddie Mac Guide in Strata sets no payoff threshold. FHA requires collection balances totaling $2,000 or more to be paid off, placed on a payment arrangement, or counted at 5 percent of each balance in DTI. VA does not require non-medical collections to be paid before closing if overall credit is acceptable, but counts them in DTI, at 5% of the balance when there is no payment arrangement. Fannie Mae requires no payoff for DU loans on one-unit principal residences and sets limits elsewhere, such as more than $5,000 for two- to four-unit and second-home DU loans, while Freddie Mac weighs non-medical collections in its manual underwriting credit review.
FHA
- In both TOTAL and manual underwriting, if collection balances total $2,000 or more, the lender must verify payoff at or before settlement, verify a payment arrangement with the creditor, or, if none is available, include 5 percent of each collection's balance in DTI. FHA 4000.1 II.A.4.b.iv FHA 4000.1 II.A.5.a.iv
- Medical collections are listed among obligations not considered debt. FHA 4000.1 II.A.4.b.iv
- Under TOTAL, the lender is not required to obtain an explanation of collection accounts, charge-offs, late payments or judgments, and charge-off accounts do not need to be included in liabilities. FHA 4000.1 II.A.4.b.iii FHA 4000.1 II.A.4.b.iv
- In manual underwriting, the borrower must provide a letter of explanation, supported by documentation, for each outstanding collection account, and the lender must document its reasons for approving the loan. FHA 4000.1 II.A.5.a.iii
VA
- Identifiable medical collections not reduced to a judgment or lien do not have to be paid off and should not affect the acceptability of the borrower's credit. VA Pamphlet 26-7, Ch. 4 Topic 7
- Isolated non-medical collection accounts "do not necessarily have to be paid off as a condition for loan approval." VA Pamphlet 26-7, Ch. 4 Topic 7
- Unpaid non-medical collections must be counted in DTI and residual income, at the minimum payment shown on the credit report or, without a payment arrangement, at 5% of the outstanding balance. VA Pamphlet 26-7, Ch. 4 Topic 7
- VA does not require these accounts to be paid off before closing if the borrower's overall credit is acceptable, but the underwriter must explain them on VA Form 26-6393 and justify why positive factors outweigh the negative credit history. VA Pamphlet 26-7, Ch. 4 Topic 7
Fannie Mae (conventional)
- For DU loans, medical collections are excluded from the payoff limits and need not be paid at or before closing; past-due accounts not reported as collections must be brought current. Fannie Mae B3-5.3-09
- For DU loans on a one-unit principal residence, collections and non-mortgage charge-offs do not have to be paid off, regardless of the amount. Fannie Mae B3-5.3-09
- For DU loans on two- to four-unit owner-occupied homes and second homes, totals over $5,000 must be paid off; for investment properties, accounts of $250 or more and totals over $1,000 must be paid off at or before closing. Fannie Mae B3-5.3-09
- For manually underwritten loans, non-medical collections and non-mortgage charge-offs need not be paid if each account is under $250 or all total $1,000 or less; balances above these limits must be paid off. Fannie Mae B3-6-07
Freddie Mac (conventional)
- For Loan Product Advisor Accept mortgages, the seller is not required to obtain or document an explanation of adverse or derogatory credit information. Freddie Mac 5201.1
- For manually underwritten mortgages, derogatory information must always be considered significant when public records show several occurrences of derogatory credit, including judgments, tax liens and/or non-medical collection accounts. Freddie Mac 5202.1
- In manual underwriting, significant adverse or derogatory credit within the most recent two years means the borrower's credit reputation must not be considered acceptable. Freddie Mac 5202.1
The Freddie Mac Guide text in Strata does not set a dollar amount above which collection accounts must be paid off before closing.
Sources
- FHA Single Family Housing Policy Handbook 4000.1, August 12, 2026 version: II.A.4.b.iv, Evaluating Liabilities and Debts (TOTAL): Collection Accounts (p. 220); II.A.5.a.iv, Evaluating Liabilities and Debts (Manual): Collection Accounts (Manual) (p. 300); II.A.4.b.iv, Evaluating Liabilities and Debts (TOTAL): Obligations Not Considered Debt (p. 222); II.A.4.b.iii, Evaluating Credit History (TOTAL): Collection Accounts, Charge Off Accounts, Accounts with Late Payments in the Previous 24 Months, and Judgments (p. 206); II.A.4.b.iv, Evaluating Liabilities and Debts (TOTAL): Charge Off Accounts (p. 221); II.A.5.a.iii, Evaluating Credit History (Manual): Collection Accounts (Manual) (p. 286)
- VA Lender's Handbook (VA Pamphlet 26-7), August 12, 2026 version: Chapter 4, Topic 7: Credit History – Required Documentation and Analysis, b. How to Analyze Credit (Medical Collection and Charge-off Accounts) (PDF p. 105); Chapter 4, Topic 7: Credit History – Required Documentation and Analysis, b. How to Analyze Credit (Non-medical Collection Accounts) (PDF p. 105)
- Fannie Mae Selling Guide, September 2, 2026 version: B3-5.3-09, DU Credit Report Analysis (Past-Due, Collection, and Charge-Off of Non-Mortgage Accounts) (p. 490, 491); B3-6-07, Debts Paid Off At or Prior to Closing (Collections, Charge-Offs of Non-Mortgage Accounts, Judgments, and Liens) (p. 525)
- Freddie Mac Single-Family Seller/Servicer Guide, September 16, 2026 version: 5201.1(a), Documenting Borrower's credit reputation (Loan Product Advisor) (p. 5201-1); 5202.1(d), Adverse or derogatory credit information (Manually Underwritten Mortgages) (p. 5202-12)
Agency guides set the baseline; individual lenders can add stricter overlays. Sources are the guideline versions in Zeitro Strata as of October 29, 2026.