Credit · Fannie Mae Selling GuideCollections, judgments and liens: what must be paid before closing

Buyers often ask whether old collections must be paid before they can close. Fannie Mae's Selling Guide (B3-5.3-09, DU Credit Report Analysis) answers by account type. Accounts reported as past due – not as collections – must be brought current. For a one-unit principal residence, collections and non-mortgage charge-offs don't have to be paid off, regardless of the amount. For two- to four-unit owner-occupied homes and second homes, collections and non-mortgage charge-offs totaling more than $5,000 must be paid in full at or before closing. For investment properties, any single collection or charge-off of $250 or more, and accounts totaling more than $1,000, must be paid in full at or before closing. Medical collections are excluded from these limits and never have to be paid at closing. Open judgments and all outstanding liens in the public records section of the credit report must be paid off at or before closing, with proof of payment and of the funds used kept in the loan file. Mortgage delinquencies are stricter: a mortgage 60 or more days past due reported in the last 12 months makes the loan ineligible, and a past-due mortgage can't simply be brought current before closing to get around it. If a disputed tradeline matters to the approval, the lender must investigate it, and a borrower who isn't responsible for the account – or can disprove the negative information, for example with canceled checks – provides documentation.