Can You Get a Mortgage With a Judgment?

It is possible to obtain a mortgage even with a judgment on your financial record. A judgment is a court’s formal decision regarding an unpaid debt where a creditor has successfully sued a debtor. While a judgment presents challenges for mortgage approval, it is not an absolute disqualifier. Understanding how judgments affect the mortgage process and taking proactive steps can help.

Impact of Judgments on Mortgage Eligibility

Judgments significantly influence a borrower’s financial profile when lenders assess mortgage eligibility. As of July 2017, civil judgments no longer appear directly on consumer credit reports. This means a judgment itself is not listed in the “public records” section of a credit report and does not directly affect a credit score.

However, the underlying financial issues that led to the judgment, such as missed payments or accounts sent to collections, remain on the credit report. These can negatively impact credit scores for up to seven years and signal financial distress to lenders. While judgments are not on credit reports, they are public record.

Mortgage lenders access public records databases, independent of credit bureaus, to discover judgments. This allows lenders to see outstanding judgments, regardless of their presence on a credit report. A judgment signals past financial non-compliance, leading lenders to view the borrower as a higher risk.

When a judgment involves an ongoing payment arrangement, these payments are factored into the borrower’s debt-to-income (DTI) ratio. A higher DTI ratio, which compares monthly debt payments to gross monthly income, can limit the mortgage loan amount a borrower qualifies for. This is because ongoing judgment payments reduce disposable income available for new mortgage obligations.

Specific Judgment Types and Lender Considerations

Mortgage lenders evaluate different types of judgments based on the underlying debt.

Civil Judgments

Civil judgments typically stem from unpaid consumer debts like credit card balances, personal loans, or medical bills that have gone through collection and litigation. Lenders often require these judgments to be fully satisfied or have a formal, consistently maintained payment plan before approving a mortgage.

Tax Liens

Tax liens, particularly from federal authorities like the IRS or state tax agencies, are viewed with concern. These liens indicate an outstanding obligation to a government entity that can take precedence over other debts. Lenders typically require full satisfaction of federal tax liens or a formal IRS installment agreement with a consistent payment history, often for at least six months.

Child Support and Alimony Arrears

Judgments related to unpaid child support or alimony arrears also carry specific considerations. Lenders require proof that outstanding judgments have been satisfied or that a formal payment arrangement is in place and current. Consistent, on-time payments for 3 to 6 months are commonly required to demonstrate financial stability. The source of a judgment influences how mortgage underwriters assess risk.

While all judgments impact eligibility, the specific type can dictate conditions or waiting periods imposed by lenders. Lenders have internal guidelines addressing various judgment categories, which affect available loan programs.

Preparing for a Mortgage Application with a Judgment

Preparing for a mortgage application with a judgment involves several preliminary steps to improve approval chances.

Obtain Judgment Copies

First, obtain official copies of the judgment from the court or public records. Understanding the judgment’s precise status—active, satisfied, on a payment plan, or vacated—is essential. This documentation is critical for providing accurate information to lenders.

Satisfy the Judgment

One resolution option is satisfying the judgment in full, including accrued interest and court fees. Upon payment, obtain an official “Satisfaction of Judgment” document from the court. This document legally confirms the debt is discharged and is vital evidence for mortgage lenders.

Negotiate a Payment Plan

If full payment is not feasible, negotiate a formal payment plan with the creditor or through the court. Not all lenders accept all types of payment plans. A demonstrated history of consistent, on-time payments, typically for several months, is usually required. This shows a commitment to resolving the debt.

Vacate the Judgment

In limited circumstances, a judgment might be disputed or vacated due to procedural errors or lack of proper notification. This process is legally complex and generally requires attorney guidance. Successfully vacating a judgment can remove it from public records, significantly improving mortgage prospects.

Gather Documentation and Review Credit

Gather all relevant documentation, including official judgment records, proof of satisfaction, payment plan agreements, and a comprehensive payment history. Review your credit reports from all three major bureaus to ensure underlying debt information is accurate and reflects resolution efforts. Dispute any inaccuracies promptly with credit reporting agencies.

Navigating the Mortgage Application Process

Navigating the mortgage application process with a judgment requires transparency and preparedness. Disclose the judgment upfront to your loan officer. Lenders will discover it during public records searches, and proactive disclosure builds trust and streamlines the process.

During underwriting, mortgage underwriters examine judgment details. They verify its current status: satisfied, active with a payment plan, or in arrears. Underwriters review all documentation, such as the Satisfaction of Judgment or payment plan agreement and history, to assess your financial stability despite the past judgment.

Conventional Loans

Different loan programs have specific requirements regarding judgments. Conventional loans, not federally insured, often have stricter underwriting guidelines. They may require full satisfaction of the judgment before or at closing. Lenders offering conventional loans view outstanding judgments as a higher risk and generally do not allow payment plans.

FHA Loans

Federal Housing Administration (FHA) loans offer more flexibility. FHA guidelines often allow an active payment plan, provided the borrower demonstrates a consistent history of on-time payments, typically for at least three months. The payment plan must be formalized and show a clear path to satisfaction.

VA Loans

Department of Veterans Affairs (VA) loans, for eligible service members and veterans, are also accommodating. VA guidelines frequently allow judgments on a payment plan, especially for tax or child support judgments, if payments are current and consistent, often requiring 12 months of on-time payments. The VA focuses on the veteran’s ability to manage current obligations.

USDA Loans

USDA loans, supporting rural homeownership, generally align with FHA guidelines. They often permit an active payment plan for a judgment, requiring a demonstrated history of timely payments for a set period. Maintain open and prompt communication with your loan officer and underwriter, providing any requested information in a timely manner.