Do collections need to be paid off for to qualify for a mortgage? NO

A Collection Account refers to an FHA mortgage applicants loan or debt that has been submitted to a collection agency by a creditor.
If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the FHA mortgage lenders must:

1.  If a payment arrangement contact has been executed, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the FHA mortgage applicants debt to income ratio.
2. Verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds;
3. Verify that the FHA mortgage applicant has made payment arrangements with the creditor and include the monthly payment in the FHA mortgage applicants Debt-to-Income ratio (debt to income ratio); orCollection accounts of a non-borrowing spouse in a community property state must be included in the $2,000 cumulative balance and analyzed as part of the FHA mortgage applicants ability to pay all collection accounts unless excluded by state law.   Unless theFHA mortgage lenders uses 5 percent of the outstanding balance, the FHA mortgage lenders must provide the following documentation:
   or
   •     evidence of payment in full, if paid prior to settlement;
   •     the payoff statement, if paid at settlement; or
   •     the payment arrangement with the creditor, if not paid prior to or at settlement.For manually underwritten loans, the FHAA mortgage lenders must determine if collection accounts were a result of:
   •     the FHA mortgage applicants disregard for financial obligations;
   •     the FHA mortgage applicants inability to manage debt; or
   •     extenuating circumstances.

   the FHA mortgage lenders must document reasons for approving a mortgage when the FHA mortgage applicant has any collection accounts. The FHA mortgage applicant must provide a letter of explanation, which is supported by documentation, for each outstanding collection account. The explanation and supporting documentation must be consistent with other credit information in the file.