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Tougher requirements start Monday for FHA mortgages

It's going to be tougher to get a government-backed mortgage on Monday.

Next week, home buyers with ongoing credit disputes over $1,000 will no longer be approved for a mortgage backed by the Federal Housing Administration. Buyers with collection accounts will either have to pay the debt off or enter into a documented payment plan.

Buyers will also have to show that three payments have been made toward the debt. The payment will be factored into the buyer's debt-to-income ratio, which could lower the amount that can be borrowed.

Andy Wood of American Mortgage Services in Tampa doesn't expect a drop in mortgage applications because of the new rule. He expects that buyers with disputed accounts will rectify them before applying for a loan.

"It will make people wait longer to apply," Wood said. "It will also create more paperwork."

Before the new rule, an underwriter could determine whether the collection accounts would impact the approval of a mortgage. The new rule comes as belt-tightening for the federal agency, since it had no earlier requirement that disputed credit accounts be paid off.

Since the housing market tanked and banks tightened lending standards, more buyers have sought government-backed loans because they only require a down payment of 3.5 percent. Conventional loans generally require higher down payments.

Credit accounts more than 2 years old or those related to identity theft will not be factored into the new rule. The lender, however, must document the fraudulent charge with a police report. If the outstanding balance of all collection accounts is less than $1,000, borrowers are not required to pay off the debts to get mortgage approval, the FHA says.

Mark Puente can be reached at or (727) 893-8459. Follow him at Twitter at