Buying a house with medical debt. There is good news.


As a mortgage lender, I am required to review my clients’ entire financial situation, including any debt. Often I see medical collection debt listed. This is one of the things that can prevent a person from getting a loan – or a loan on favorable terms.

For people working hard to pay off medical debt, there’s great news from the world of consumer credit reporting.

As of July 1, medical collection debt that is paid is no longer included in credit reports.

Additionally, the time period before unpaid medical collection debt appears on a credit report has increased from six months to one year. The extension gives potential buyers more time to work with insurance and/or healthcare providers to settle their debt before it is flagged on their credit report.

Borrowers may be able to negotiate the amount owed or work out a payment plan. (If a medical collection is wrongly reported, you should always contact the provider and the collection agency, and you can also file a dispute with the credit bureaus.)

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If you still have unpaid medical debt after the initial grace period, collections on your credit report may affect your mortgage eligibility. With FHA loans, the mortgage lender must determine if collection accounts (including medical) have been opened due to the borrower’s disregard for financial obligations, inability to manage debts, or extenuating circumstances.

The mortgage lender must document the reasons for approving a mortgage when the borrower has collection accounts. The borrower must provide a letter of explanation supported by documents. If the medical collection is in dispute, the lender may be able to exclude it when analyzing credit history, although documentation may still be required.

In the first half of 2023, Equifax, Experian and TransUnion will also no longer include medical collection debts under $500 in credit reports.

These changes are very important for people who are trying to improve their credit scores.

Here are more tips to increase your score.

  • Pay your bills on time. Payment history has the biggest impact on your credit score: even one or two late payments can have a huge impact on your score. Lenders and other creditors want to make sure you make your payments on time.
  • Keep the balances low. Debt isn’t a bad thing, but the key is how you handle it. If you max out all of your loans and credit cards, your scores will be affected. Keeping your balance below your credit limit will help your scores, as it shows that you are responsible and can manage your spending.
  • Apply for and open credit accounts only as needed. If you need a new account, make sure the terms and conditions are acceptable, keep your balance low, and pay your bill on time.
  • Pay off your debts rather than moving them. Moving debt from one account to another won’t solve anything. You must work to pay off balances consistently.
  • Be patient. Raising your credit score requires long-term regular payments and responsible activity. This kind of behavior demonstrates that you can handle a large credit account like a mortgage.

As we look to 2023, be optimistic about buying a home and ask your mortgage lender about any important credit reporting changes you need to be aware of.

Shikma Rubin is a loan officer at Tidewater Home Funding in Chesapeake. Do you have mortgage questions? Join her at [email protected] or 757-490-4726.

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