Do Medical Collections Stop a DSCR Rental Property Loan?

Medical collections do not stop a DSCR loan on a rental property, and unlike almost every other kind of derogatory credit, they do not have to be paid off first. Our DSCR guideline names them specifically: medical collections may remain outstanding if the balance is less than $10,000 in aggregate. That is the whole carve-out, and it is the only place in the credit section where the word "medical" appears.

Everything else you may be carrying — judgments, tax liens, charge-offs, past-due accounts — is treated differently, and most of it has to be cleared before or at closing. So the real question for most borrowers is not "will my medical collection sink this," it is "which of the other things on my report are the ones that actually will." This page walks the categories in the order underwriting reads them, with the exact thresholds and the documentation that resolves each.

The medical carve-out, stated exactly

The provision is short and it is worth reading literally.

Three words in that sentence do the work.

"Remain outstanding." Not forgiven, not ignored for scoring purposes, not removed from the report. The balance stays open and unpaid through closing and nobody asks you to satisfy it. This is a permission, not a deletion.

"Less than." Not "up to," not "$10,000 or less." A single medical collection reporting at exactly $10,000 is outside the permission as written. So is $10,412 across four accounts.

"In aggregate." The test sums your medical collections. One $9,000 hospital collection sits inside it. Three $4,000 collections do not — that is $12,000 and the permission no longer covers it.

The guideline does not say whether the aggregate is measured per guarantor or across all guarantors on the file. On a two-guarantor entity loan that difference can matter. It is silent, so ask before you assume, and assume the conservative reading while you wait.

It also does not spell out what happens above the line. The permission simply stops applying. At that point the item falls back under the general guarantor eligibility rule, which prohibits material unpaid collections — and as you will see in a moment, the guideline supplies a dollar definition of "material" for judgments but not for collections. Practically: if your medical aggregate is at or above $10,000, plan to resolve it rather than plan to argue it.

What is not a medical carve-out

The phrase "medical collections" is doing narrow work. It does not reach:

• A medical bill that was charged to a credit card and later charged off. That is a charge-off, scored under the charge-off rules below.
• A medical debt reduced to a court judgment. That is a judgment, and judgments have their own threshold and their own payoff requirement.
• A medical account that is past due but has not yet gone to collection. Past-due accounts sit in the "satisfied or brought current" list.
• A medical bill sold to a debt buyer that reports as an ordinary consumer collection. How the furnisher codes it on the credit report is what the underwriter reads.

The route the debt took after it left the provider determines which rule applies to it. Same underlying bill, four different outcomes.

Every derogatory category, and what each requires

Here is the whole derogatory picture on a DSCR file, in one place.

Two things stand out when you lay it out this way.

First, the pay-it-or-cure-it requirement is a named list: tax liens, judgments, charge-offs, and past-due accounts. Collections — medical or otherwise — are not on that list. They are governed instead by the materiality test in the guarantor eligibility section.

Second, that materiality test is asymmetric.

The sentence covers judgments and collections together, then defines the dollar line for judgments only. There is no equivalent figure for collections. Outside the medical carve-out, whether a given collection is "material" is a manual underwriting judgment, and every DSCR file here is manually underwritten. That is not evasion — it is what the document says, and you should plan around a judgment call rather than a number.

Judgments

A judgment is a court order, and the guideline treats it accordingly. Two separate rules apply and both have to be satisfied.

The materiality rule: judgments of $5,000 or more are material and a material unpaid judgment makes the guarantor ineligible. The stated exception is a debt that is unenforceable under the state statute of limitations. Whether that applies to your specific judgment in your specific state is a legal question — ask your attorney, not your loan officer, and bring the answer back in writing.

The clearance rule, which is newer, is broader:

Note that this one carries no dollar threshold. Read together, a $3,000 judgment is not "material" under the eligibility test, but it still sits in a category the guideline says must be satisfied or brought current at closing. The safe planning assumption is that any judgment on the report gets addressed, and that the $5,000 line governs eligibility rather than exempting smaller judgments from clearance.

Tax liens

Tax liens get their own sentence in the eligibility section, and it is more accommodating than most borrowers expect.

An outstanding tax lien — personal or property-related — is acceptable if there is an established payment plan with at least six months of payment history behind it. Without that plan and that history, the lien is paid at closing. Two exemptions from the payoff requirement are named: a lien considered unenforceable due to the statute of limitations, and a lien with an outstanding amount under $2,000.

There is a tension inside the document here worth naming rather than smoothing over. The eligibility section permits an unpaid tax lien on an established plan. The Significant Derogatory Credit section — updated later, in September 2025 — says tax liens must be satisfied or brought current prior to or at closing. The most coherent reading is that a lien on a documented plan in good standing is "brought current," which reconciles the two. But the later language is the later language, and if a payment plan is the pillar holding your file up, confirm the treatment before you rely on it.

Charge-offs

Charge-offs are scored twice, on two different clocks, and both tests apply.

The size test, from guarantor eligibility: no charge-offs within the last 12 months of $5,000 or more.

The event test, from Significant Derogatory Credit: a charge-off is grouped with a Notice of Default and a Pre-Foreclosure Sale, and the stated window for those is 36 months. Then the clearance rule adds that charge-offs must be satisfied or brought current prior to or at closing.

So a $6,000 charge-off that hit fourteen months ago clears the 12-month size test and still sits inside the 36-month derogatory window. The three-year clock that governs foreclosures, deeds-in-lieu, short sales and bankruptcy discharge is covered in detail in [DSCR loan after foreclosure or deed in lieu](/blog/dscr-loan-after-foreclosure-or-deed-in-lieu) — if you have one of those events, start there.

The cash-out trap

This is the provision that costs people real money because it is discovered late.

The obvious plan — pull cash out of the rental, use it to clean up the judgment and the tax lien, close everything at once — is specifically prohibited. The funds to clear those four categories have to come from somewhere other than the loan you are closing.

Two practical consequences. One, the payoff money is a separate source you need to identify and document before closing, not a line on the settlement statement. Two, sequence matters: if you are going to clear these items with your own funds anyway, doing it well before application is cleaner than doing it at the table, because it gives the credit report time to catch up.

Note again which four items are listed. Collections are absent from this prohibition, just as they are absent from the clearance list. That is what the document says. It is not a licence to plan a cash-out around a large non-medical collection — the materiality test still applies to it — but it is the literal text.

What documentation resolves each item

Different items are resolved by different paper. The pattern is consistent: money, a plan, or an explanation.

That last row is the one people forget.

Four years, not three. The letter requirement reaches back further than the waiting periods do, which means you can be well past the seasoning window on an event and still owe an explanation for it. Write it plainly: what happened, when, what resolved it, and why it does not recur. It is not an essay and there is no benefit in making it one.

Timing and the credit report clock

Paying an item off is not the same as underwriting seeing it paid. Two dating rules bracket the window you are working in, and the document states them slightly differently in two places: the eligibility section requires personal credit reports dated within 120 days of completing final underwriting, while the Age of Documents section states 120 days from the note date. Either way you have roughly a four-month window, and a payoff made too early in a slow file can require a re-pull.

The practical sequence:

1. Pull all three bureaus yourself before you apply. The file will use a tri-merged report on every guarantor at 25% or greater ownership, so surprises surface anyway — better on your schedule.

2. Total the medical collections. Confirm the aggregate is under the limit.

3. List the judgments, liens, charge-offs and past-due accounts separately, with amounts and dates.

4. Identify the non-loan funds that will clear them.

5. Get payoff letters and releases, not just receipts. A paid judgment that still reports open is a condition.

6. Write the explanation letter for anything inside four years.

The credit floor these rules sit on top of

None of the above matters if the score is not there. Our DSCR program requires a minimum FICO of 660 for all guarantors. With one individual guarantor, the middle score sets the interest rate and LTV. With multiple guarantors, rate and LTV are driven by the guarantor with the lowest middle score, and every other guarantor still has to clear 660 on their own.

There is also a depth requirement that is independent of score: a guarantor cannot have only one credit score, or less than 24 months of credit history, and authorized-user accounts and non-traditional credit do not count toward the tradeline minimums. The full counting matrix is in [how many tradelines you need for a DSCR loan](/blog/how-many-tradelines-do-you-need-for-a-dscr-loan).

The interaction that matters here: paying a collection can move a score in either direction depending on the model, and a borrower sitting at 662 who pays three accounts the week before submission is taking a risk with no upside. If you are inside the medical allowance, leave it alone.

Where the guideline is silent

Being straight about the gaps is more useful than filling them:

• No collection materiality figure. The $5,000 line is defined for judgments. Non-medical collections have no stated dollar threshold.
• No per-guarantor vs per-file rule for the medical aggregate.
• No stated treatment above $10,000 beyond the general materiality test.
• No age limit on medical collections. The rule is a balance test, not a seasoning test.
• No disputed-account provision in the derogatory section. If you have disputes on the report, raise them early rather than assuming a rule exists.

Where the document is quiet, we do not invent a number for you. We ask.

What this page does not do

This is not an approval, a quote, a rate lock or a credit decision, and reading it does not put a file in underwriting. Every DSCR loan here is manually underwritten and the underwriter reads your actual tri-merged report, not a summary of it.

It also does not cover: DSCR calculation and the minimum ratio, LTV and pricing tiers, reserve requirements, the property and lease documentation, entity and guaranty structure, investor experience requirements, prepayment penalties, or the state-level restrictions in the program appendix. The three-year seasoning clock for foreclosure, deed-in-lieu, short sale and bankruptcy is covered in the sibling article linked above, as is the tradeline counting matrix.

Anything turning on whether a specific debt is legally enforceable — statute of limitations, judgment validity, lien priority — is a question for your attorney, and tax lien consequences are a question for your accountant. We will tell you what documentation underwriting needs. We will not tell you what the law says about your debt.

Guidelines change. The figures on this page reflect DSCR V28. If you are reading this well after it was published, confirm the thresholds before you plan around them.

Guideline DSCR V28 · Reviewed August 31, 2026

Published September 1, 2026 · Updated September 1, 2026