Does Medical Debt Affect Buying a House? Score, DTI, and Loans

Medical debt can affect your ability to buy a house, but its impact is smaller than most other debts. Paid medical collections and unpaid balances under $500 no longer appear on your credit report, and none of the major mortgage programs require you to pay off medical collections before closing. Larger unpaid medical balances can still show up on your report, drag down your credit score, and eat into how much house you can afford through your debt-to-income ratio.

Here is how it actually plays out at each step of a mortgage application, and what you can do before applying.

What Medical Debt Now Shows on Your Credit Report

In 2023, Equifax, Experian, and TransUnion voluntarily changed how they handle medical debt. Three protections apply:

Paid medical collections are removed entirely. They no longer sit on your report as a “paid collection” for seven years.
Medical collections with an original balance under $500 do not appear at all.
Unpaid medical debt cannot be reported until at least one year after the date of service, giving you time to work with your insurer or set up a payment plan.

These are bureau policies, not federal law.¹ The CFPB finalized a rule in early 2025 that would have removed nearly all medical debt from credit reports and blocked lenders from considering it in underwriting, but the U.S. District Court for the Eastern District of Texas vacated that rule on July 11, 2025 in Cornerstone Credit Union League v. CFPB, finding it exceeded the Bureau’s authority under the Fair Credit Reporting Act.²

So the current rule is straightforward: if you owe $500 or more on a medical bill that has been unpaid for at least a year, it can appear on your credit report.

How Medical Debt Affects Your Credit Score for a Mortgage

Not every credit score treats medical collections the same, and the version your mortgage lender uses matters far more than the number you see on a free credit app.

Older FICO models treat a medical collection like any other unpaid debt. Newer models (FICO 9, FICO 10) reduce the weight given to medical collections. VantageScore 3.0 and 4.0 ignore medical collections entirely, paid or unpaid.³

For loans sold to Fannie Mae and Freddie Mac, lenders can currently use either “Classic FICO” (the older model used in mortgage lending for decades) or VantageScore 4.0. If your lender uses VantageScore 4.0, medical collections do not affect your score. If they use Classic FICO, those collections carry full weight. FICO 10T has been approved for future use but is not yet implemented.⁴

Ask your loan officer which model they will use. It can change the answer to whether a medical collection matters at all.

When a collection does drag your score down, the cost adds up. Based on February 2026 rate data, a borrower at 620 typically pays about one percentage point more than a borrower at 780 or higher. On a $300,000 thirty-year mortgage, that one point adds roughly $65,000 in total interest over the life of the loan.

As of November 15, 2025, Fannie Mae’s Desktop Underwriter no longer requires a minimum third-party credit score, relying on its own risk assessment instead.⁵ Other programs and individual lenders still set their own thresholds. FHA loans generally require at least a 580 score for the lowest down payment option.

How Medical Debt Affects Your Debt-to-Income Ratio

Even when medical debt does not appear on your credit report, it can still affect your mortgage. Your debt-to-income ratio (DTI) compares your total monthly debt payments to your gross monthly income, and lenders use it to judge whether you can handle a new mortgage payment.⁶ Most conventional programs want total DTI at or below 43%.

If you are making monthly payments to a hospital or collection agency, the underwriter reviewing your bank statements will see those withdrawals and add them to your monthly debt total. A $300 monthly hospital payment can shrink your maximum loan amount by $40,000 or more, depending on interest rates and income.

DTI is tied to your current cash flow, so unlike a credit-score hit that fades as an account ages, this one shows up the moment you apply. Paying a medical balance off in full or settling it in a lump sum before applying eliminates the monthly payment from the DTI calculation.

How Each Mortgage Program Treats Medical Collections

Underwriting rules for medical debt differ by loan program, and every major program is more lenient with medical collections than with other kinds of debt.

FHA Loans

HUD’s official handbook categorizes medical collections as “obligations not considered debt” when a lender uses the TOTAL Mortgage Scorecard, the automated underwriting system for FHA loans. They are excluded from debt calculations entirely and do not need to be paid off before closing. Disputed medical accounts are also excluded from the $1,000 collection threshold that would otherwise trigger a downgrade to manual underwriting.⁷

Conventional Loans (Fannie Mae and Freddie Mac)

Fannie Mae’s Desktop Underwriter does not use medical collections in its risk assessment, and borrowers are not required to pay them off before closing regardless of balance. Open judgments and liens are different: they must be resolved before closing because they create a legal claim against the property.⁸ A collection is debt sent to a third-party collector. A judgment is a court order that attaches to your assets. The distinction matters at closing.

VA Loans

For veterans using a VA-guaranteed loan, federal underwriting standards state that a collection account does not need to be paid off as long as the borrower is otherwise a satisfactory credit risk. Court-ordered judgments, on the other hand, must be paid off before the loan can be approved.⁹

USDA Loans

USDA Rural Development loans allow disputed medical accounts to be excluded from underwriting analysis. Medical debts that are chronically late or in collection may still be flagged as credit problems that need to be addressed, unless the applicant has a credit score of 640 or higher.¹⁰

Dispute Errors Before You Apply

Medical billing errors are common: duplicate charges, bills sent before insurance processed the claim, or debts reported after they were already paid. Under the Fair Credit Reporting Act, the credit bureau generally has 30 days to investigate a dispute and must notify you of the results within five business days after finishing. Submitting additional documents during the investigation can extend the timeline by 15 days.¹¹

Include copies of insurance explanation-of-benefits statements, payment receipts, or any correspondence showing the debt was resolved. File with every bureau that shows the error, because a correction at one bureau does not automatically update the others. And check specifically for anything that should already be gone under current policy: any paid medical collection, or any medical debt under $500.¹

Ask the Hospital About Financial Assistance

Before a medical bill turns into a collection account, it may qualify for hospital financial assistance. Under Section 501(r)(4) of the Internal Revenue Code, every nonprofit hospital must maintain a written financial assistance policy, publicize eligibility for free or discounted care, and make the policy available on its website and in public areas like the emergency department and admissions office.¹²

Eligibility varies, but many programs cover households up to 200% to 400% of the federal poverty level. Tax-exempt hospitals are also prohibited from charging financial-assistance-eligible patients more than the amounts generally billed to insured patients. Some hospitals will apply financial assistance retroactively even after a bill has gone to collections, so it is worth asking either way.

Watch the Tax Bill if You Settle

If a hospital or collector forgives or settles a medical debt for less than the full balance, the IRS generally treats the forgiven amount as taxable income. Creditors that cancel $600 or more of debt file Form 1099-C, and you have to include the amount on your return even if you never receive the form.¹³

Two exceptions can reduce or wipe out the tax hit:

Insolvency. If your total liabilities exceeded your total assets immediately before the debt was canceled, you can exclude the forgiven amount from income up to the extent of your insolvency by filing Form 982. Medical bills you owe count as liabilities in this calculation.¹⁴¹⁵
Deductible-debt exception. If you would have been able to deduct the medical expense had you actually paid it (for example, if your medical expenses exceeded 7.5% of your adjusted gross income), the forgiven amount may not count as income.¹⁵

This matters for a homebuyer because an unexpected tax bill can hit right when you need cash for a down payment and closing costs. If you plan to settle a large medical balance before applying for a mortgage, price the tax owed into the plan.

1
Consumer Financial Protection Bureau. Have Medical Debt? Anything Already Paid or Under $500 Should No Longer Be on Your Credit Report
2
Consumer Financial Protection Bureau. CFPB Finalizes Rule to Remove Medical Bills From Credit Reports
3
VantageScore. Major Credit Score News: VantageScore Removes Medical Debt Collection Records From Latest Scoring Models
4
Federal Housing Finance Agency. Credit Scores
5
Fannie Mae. Desktop Underwriter Credit Risk Assessment Updates
6
Consumer Financial Protection Bureau. What Is a Debt-to-Income Ratio?
7
U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
8
Fannie Mae. DU Credit Report Analysis
9
eCFR. 38 CFR 36.4340 – Underwriting Standards, Processing Procedures, Lender Responsibility, and Lender Certification
10
USDA Rural Development. Section 502 and 504 Direct Loan Program Credit Requirements
11
Consumer Financial Protection Bureau. How Long Does It Take to Repair an Error on a Credit Report
12
Internal Revenue Service. Financial Assistance Policy and Emergency Medical Care Policy – Section 501(r)(4)
13
Internal Revenue Service. About Form 1099-C, Cancellation of Debt
14
Internal Revenue Service. What if I Am Insolvent?
15
Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments