FNMA Charge-Off Guidelines: What Must Borrowers Pay (and When)?

A FNMA charge-off happens when Fannie Mae writes off your mortgage or other debt as uncollectible-usually after 120–180 days of missed payments. It doesn’t mean you’re off the hook, though. The debt still exists, and they might sell it to collections or even sue you. For mortgages, this messes with your credit and can block future loans unless you follow FNMA’s strict rules.

The rules change based on the property type.
Primary homes? Charge-offs often don’t need repayment.
Investment properties? Pay any single charge-off over $250 or $1,000+ total before closing.
Second homes or multi-unit properties? Collections over $5,000 must be settled.
Check '3 must-know FNMA charge off rules' for specifics.
Either way, expect a seven-year credit hit and potential roadblocks until resolved.

A charge-off happens when you're 120–180 days late (4–6 months) on a debt payment-creditors write it off as a loss but don’t let you off the hook. Here’s the timeline breakdown:

• Day 1-30 late: You’re "delinquent," but it’s not reported to credit bureaus yet.
• Day 30-90 late: The account is reported as late, and your credit score drops.
• Day 120-180 late: Boom-charge-off. The lender gives up on collecting and marks it as a loss.

Even after a charge-off, you still owe the debt, and it’ll haunt your credit report for seven years. Check 'how charge offs impact your credit score' for the full damage.

If you’re applying for a mortgage, FNMA has strict rules-especially for investment properties-so peek at '3 must-know fnma charge off rules' next.

Here’s the deal with FNMA charge-off rules: they’re strict, but knowing them saves you headaches when applying for a mortgage. Let’s break down the three key rules you can’t ignore.

1. Primary residences get a pass (mostly). If your charge-off is on your primary home, FNMA usually doesn’t require repayment-unless it’s tied to a government-backed loan. But don’t celebrate yet. Lenders still scrutinize your credit history, and unpaid charge-offs can tank your approval chances. Check 'how charge offs impact your credit score' for why this matters.

2. Second homes or 2–4-unit properties? Pay up. For these, FNMA demands you clear any single charge-off or collection over $5,000 before or at closing. No exceptions. If you’re eyeing a vacation home, start saving-or negotiate a payoff plan early.

3. Investment properties? Stricter rules. Any single charge-off of $250+ or cumulative ones over $1,000 must be paid in full before closing. FNMA doesn’t mess around here. Miss this, and your loan’s dead on arrival.

Bottom line: Know your property type, check the dollar thresholds, and resolve charge-offs ASAP. If you’re juggling multiple, dive into 'getting approved after multiple charge offs' for next steps.

Fannie Mae (FNMA) has strict rules for investment property charge-offs-if you owe $250 or more on a single account (or $1,000+ across multiple accounts), you must pay it in full before closing. No exceptions. Investment properties get zero leniency compared to primary homes, where smaller charge-offs might slide. Here’s what you need to know:

• Thresholds: Any single charge-off ≥$250 or total charge-offs ≥$1,000 must be resolved. Even a $300 unpaid utility bill could tank your approval.
• Timing: Pay it before closing-lenders won’t fund the loan until they see proof. DU underwriting will flag it instantly.
• Documentation: Get a paid receipt or settlement letter. Verbal promises don’t count.

If you’re juggling multiple charge-offs, check 'getting approved after multiple charge offs' for strategies. FNMA’s rules are brutal but predictable-clean up the debts, or pivot to a non-FNMA lender. Charge-offs stay on your report for seven years, but paying them upfront is your only path to approval here.

Fannie Mae's rules for charge-offs on non-mortgage accounts depend heavily on the property type you’re financing. For primary residences, you’re in luck-FNMA doesn’t require repayment of non-mortgage charge-offs, no matter the amount. But if you’re buying a second home or a 2–4-unit property, you’ll need pay off any single charge-off or collection over $5,000 before or at closing. Investment properties? Stricter. Even a $250 charge-off must be paid in full if it’s standalone, or $1,000+ for multiple accounts. These rules exist because FNMA views unpaid debts as red flags for risk, especially on non-primary properties.

Wondering how this plays out in real life? Say you’re eyeing a vacation home but have a $6,000 charged-off credit card. You’d need clear that debt first. Key takeaways:

• Primary home: No repayment needed.
• Second home/2–4-unit: Pay if over $5,000.
• Investment property: $250+ triggers repayment.

Check 'how automated underwriting flags charge offs' if you’re worried about approval.

An extenuating circumstance is a one-time, uncontrollable event that wrecked your finances-like losing your job, a serious illness, or a divorce-and you’ve got the paperwork to prove it. Fannie Mae cares because these aren’t "oops, I forgot to pay" situations; they’re life-altering disasters that derailed your ability to meet obligations. Think:

• Job loss (layoffs, not quitting)
• Medical emergencies (hospitalization, chronic illness)
• Divorce or death of a co-borrower (sudden loss of income)
• Natural disasters (fires, floods-if they directly impacted you)

Key detail: The event must be non-recurring (not ongoing overspending) and documented (think termination letters, medical bills, divorce decrees). If your dog ate your paycheck, that’s not gonna fly.

Fannie Mae uses this to shorten waiting periods for new loans (see 'getting approved after multiple charge offs'), but you’ll need a lender letter explaining how the event caused the charge-off. No docs? No exception. And no, "the economy was bad" isn’t enough-be specific.

Automated underwriting flags charge-offs by scanning your credit report for specific derogatory codes-like "CO" or "9"-that signal unpaid debts written off by lenders. Fannie Mae’s Desktop Underwriter (DU) system then crunches these flags into your risk assessment, forcing lenders to address them before approval. Here’s how it works:

• Code Detection: DU spots charge-offs via credit bureau codes, tagging them as severe delinquencies.
• Dollar Thresholds: It checks if the amount meets FNMA’s rules (e.g., $250+ for investment properties).
• Documentation Demand: Lenders must prove resolved charge-offs are paid or justify exceptions (like 'extenuating circumstances').

If DU flags a charge-off, you’ll need to either pay it (per FNMA’s property-type rules) or show it’s irrelevant (e.g., a medical debt under $500). The system won’t budge until you clear these hurdles-no shortcuts. For deeper fixes, check 'getting approved after multiple charge offs'.

Getting approved after multiple charge-offs is tough but doable if you follow Fannie Mae’s rules and rebuild strategically. Lenders care about property type, charge-off amounts, and whether you’ve paid required accounts-plus waiting periods and extenuating circumstances matter. For primary homes, unpaid charge-offs under $5,000 might slide, but investment properties demand full repayment if over $250 (or $1,000 total).

First, nail the waiting periods: 4 years from the last charge-off, or 2 years with documented extenuating circumstances (like job loss or illness). Use this time to rebuild credit-pay current bills on time, keep balances low, and consider a secured credit card. Lenders want 12–24 months of clean credit history post-charge-off. Check 'how charge offs impact your credit score' to understand the damage and track progress.

Some lenders add overlays, like requiring charge-offs to be paid even if FNMA doesn’t. Shop around-portfolio lenders or credit unions might be more flexible. Always get proof of settlement (paid in full or payment plan) and dispute errors on your report. If you’ve paid required accounts and waited, DU’s automated underwriting might approve you despite past mistakes. Keep pushing.

A charge-off doesn’t erase your debt-it just means the lender gave up on collecting. You still owe the money, and they’ll likely sell it to a collection agency or sue you. Your credit score tanks, and the account stays on your report for seven years, dragging down future loan approvals. Even if you ignore it, collectors can hound you for payment, garnish wages, or place liens on assets, depending on your state’s laws.

The debt might change hands multiple times, but each new owner can restart the pressure. Paying it won’t remove the charge-off from your credit report, but it’ll show as "paid," which looks better to lenders. If the statute of limitations expires, they can’t sue, but they’ll still try to collect. For specifics on timelines, check 'how long does a charge off stay on your report?'

A charge-off and foreclosure both hurt your credit, but they’re fundamentally different beasts. A charge-off happens when a lender gives up on collecting a debt (like a credit card or personal loan) after 180 days of non-payment and writes it off as a loss-but you still owe the money. Foreclosure is when you default on a mortgage, and the lender seizes your home to recoup losses. One’s an accounting move; the other’s a legal eviction.

Charge-offs ding your credit for seven years but don’t directly cost you assets. Foreclosure is worse-you lose the house and get a credit score nosedive that lingers for seven years too. FNMA treats them differently: Charge-offs on primary residences often don’t require repayment, but foreclosure means waiting 7 years (or 3 with extenuating circumstances) to qualify for a new mortgage. Need specifics? Check ‘how charge offs impact your credit score’ for the gritty details.

A charge-off tanks your credit score-hard. It’s one of the worst derogatory marks you can get, signaling to lenders you didn’t pay a debt even after 180+ days of delinquency. Expect a drop of 100+ points, especially if your score was decent before. The impact lingers because charge-offs stay on your report for seven years, dragging down your ability to qualify for loans or decent interest rates. Even if you pay it later, the mark remains (though "paid" looks slightly better to lenders).

The deeper issue? Lenders see charge-offs as a red flag for risk. Fannie Mae’s automated underwriting system will flag it, and you’ll face stricter rules-like paying off certain charge-offs before closing (check '3 must-know fnma charge off rules'). Rebuilding credit takes time, but focus on consistent on-time payments and reducing debt. If the charge-off was due to an extenuating circumstance, document it-it might help with exceptions.

A charge-off stays on your credit report for seven years from the date of the first missed payment that led to it-no exceptions. Even if you pay it off later, the timeline doesn’t reset, but the status updates to "paid charge-off," which looks slightly better to lenders. Fannie Mae still considers it a derogatory mark during this period, so it’ll haunt your mortgage applications unless you meet their specific repayment rules (like paying off investment property charge-offs over $250).

Here’s the kicker: Your credit score takes the biggest hit in the first two years, but the sting fades over time. If you’re eyeing a mortgage, check 'how charge offs impact your credit score' for tactics to rebuild. Pro tip: Dispute errors if the date’s wrong-it could shave time off the seven-year wait. Just know the debt itself might still be collectible; that’s where 'statute of limitations' comes in.

A charge-off becomes unenforceable when the statute of limitations expires in your state-meaning creditors can’t sue you to collect the debt. But here’s the catch: the timeline varies wildly (3-10 years) depending on your location and debt type (credit card, medical, mortgage, etc.). For example, in California, it’s 4 years for credit card debt, while Ohio gives creditors 6 years. Check your state’s rules-because even if the debt is "zombie debt," collectors might still try to scare you into paying.

Key things to know:

• The clock starts at your last payment or activity (not the charge-off date).
• Some states pause the timer if you leave or acknowledge the debt.
• It’ll still haunt your credit report for 7 years (see 'how long does a charge off stay on your report?').

Don’t ignore a lawsuit-expired or not, you must respond to avoid a default judgment.