Q: Do I have to pay off collection accounts when qualifying for a USDA loan?
A: Applicants are expected to demonstrate a reasonable ability and willingness to meet obligations as they come due. It is the underwriter’s responsibility to determine what collection accounts, if any, should be paid in full by the applicant prior to or at closing, and based on the strength of the credit profile. Evidence of meaningful financial reserves and if the account(s) have the potential to affect the lien position or diminish the borrower’s equity must be considered. The underwriting decision must be fully documented on the underwriting analysis.