Medical debt can still affect buying a house, but less than it used to. Larger unpaid medical balances can lower your credit score and shrink the mortgage you qualify for, yet most loan programs no longer require you to pay off medical collections before closing, and since 2023 the three major credit bureaus have kept paid medical collections and balances under $500 off your credit report entirely.
What Medical Debt Still Shows Up on Your Credit Report
Equifax, Experian, and TransUnion voluntarily changed their medical-debt policies in 2023. Three protections apply now:
- Paid medical collections are removed from your report instead of lingering 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.1Consumer Financial Protection Bureau. Have Medical Debt? Anything Already Paid or Under $500 Should No Longer Be on Your Credit Report The Consumer Financial Protection Bureau finalized a rule in early 2025 that would have banned nearly all medical debt from credit reports and blocked lenders from using it in underwriting, but a federal district court vacated that rule on July 11, 2025.2Consumer Financial Protection Bureau. CFPB Finalizes Rule to Remove Medical Bills From Credit Reports
So the practical rule is this: if you owe $500 or more on a medical bill that has gone unpaid for at least a year, it can still land on your credit report. Under the Fair Credit Reporting Act, most collection accounts can remain for seven years from the date the original debt first became delinquent.3Office of the Law Revision Counsel. 15 USC 1681 – Congressional Findings and Statement of Purpose
How Medical Collections Affect Your Credit Score
Not every scoring model treats medical debt the same way. Older FICO versions count a medical collection like any other unpaid debt. Newer models — FICO 9 and FICO 10 — reduce the weight of medical collections. VantageScore 3.0 and 4.0 ignore medical collection accounts entirely, whether paid or unpaid.4VantageScore. Major Credit Score News: VantageScore Removes Medical Debt Collection Records From Latest Scoring Models
The model your mortgage lender uses matters more than the score you see on a free credit app. For loans sold to Fannie Mae and Freddie Mac, lenders currently choose between “Classic FICO” and VantageScore 4.0. If your lender uses VantageScore 4.0, medical collections will not drag your score down. If your lender uses Classic FICO, they will. FICO 10T has been approved for future use but has not yet been implemented.5Federal Housing Finance Agency. Credit Scores
A lower score costs real money. Based on February 2026 rate data, a borrower with a 620 score typically pays roughly one percentage point more in interest than a borrower at 780 or higher. On a $300,000 thirty-year mortgage, that one point adds about $65,000 in interest over the life of the loan.
Fannie Mae’s Desktop Underwriter stopped requiring a minimum third-party credit score as of November 15, 2025, relying instead on its own risk assessment.6Fannie Mae. Desktop Underwriter Credit Risk Assessment Updates Other programs still set their own floors; FHA generally requires at least 580 for the lowest down payment option.
How Medical Debt Affects Your Debt-to-Income Ratio
Your debt-to-income ratio compares your total monthly debt payments to your gross monthly income, and lenders use it to judge whether you can carry a mortgage on top of what you already owe.7Consumer Financial Protection Bureau. What Is a Debt-to-Income Ratio? Most conventional programs look for a total ratio at or below 43%, though this varies by loan and lender.
Here is the catch: medical debt can affect your DTI even if it never shows up on your credit report. If you are making monthly payments to a hospital or collection agency, underwriters reviewing your bank statements will see those recurring withdrawals and add them to your monthly debt total. A $300 monthly hospital payment could cut your maximum loan amount by $40,000 or more, depending on rates and income.
Unlike a credit-score hit that fades as a collection ages, the DTI effect is immediate and tied to your current cash flow. Paying off a medical balance in full, or negotiating a lump-sum settlement before you apply, removes that monthly payment from the calculation.
How Each Loan Program Treats Medical Collections
Underwriting rules for medical debt depend on the loan program. Most treat medical collections more leniently than credit card or auto defaults.
FHA Loans
The Federal Housing Administration is the most lenient. Under HUD’s handbook, medical collections are “obligations not considered debt” when the TOTAL Mortgage Scorecard runs the file, meaning they are excluded from debt calculations and do not need to be paid off before closing. Disputed medical accounts are also excluded from the $1,000 threshold that would otherwise trigger a downgrade to manual underwriting.8U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
Conventional (Fannie Mae and Freddie Mac) Loans
Fannie Mae’s Desktop Underwriter does not use medical collections in its risk assessment, and borrowers are not required to pay off medical collections before closing regardless of balance. Open judgments and liens are different and must be resolved before closing, because they create a legal claim against the property.9Fannie Mae. DU Credit Report Analysis A collection is a debt sent to a third-party collector; a judgment is a court order that attaches to your assets.
VA Loans
For VA-guaranteed loans, federal underwriting standards say a collection account does not need to be paid off as long as the borrower is otherwise a satisfactory credit risk. Court-ordered judgments do have to be paid off before approval.10eCFR. 38 CFR 36.4340 – Underwriting Standards, Processing Procedures, Lender Responsibility, and Lender Certification
USDA Loans
USDA Rural Development loans allow disputed medical accounts to be excluded from underwriting analysis. Chronically late medical debts or those placed 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.11USDA Rural Development. Section 502 and 504 Direct Loan Program Credit Requirements
What to Do Before You Apply
Check Your Report and Dispute Errors
Medical billing errors are common: duplicate charges, bills sent before insurance processed the claim, debts reported after payment. Under the Fair Credit Reporting Act you can dispute inaccurate medical debt with each bureau that lists it, and the bureau generally has 30 days to investigate.12Consumer Financial Protection Bureau. How Long Does It Take to Repair an Error on a Credit Report Include explanation-of-benefits statements, payment receipts, and any correspondence showing the debt was resolved. A correction at one bureau does not automatically update the others. Check specifically for anything paid or under $500; under current bureau policy, neither should be on your report.
Ask the Hospital About Financial Assistance
Before medical debt reaches a collector, it is worth asking whether you qualify for assistance directly from the hospital. Federal law requires every nonprofit hospital to maintain a written financial assistance policy, sometimes called charity care, and to publicize how to apply.13Internal Revenue Service. Financial Assistance Policy and Emergency Medical Care Policy – Section 501(r)(4) Thresholds vary, but many programs cover households up to 200% to 400% of the federal poverty level, and tax-exempt hospitals cannot charge assistance-eligible patients more than amounts generally billed to insured patients. Some hospitals will even apply assistance retroactively to a bill already in collections, so ask.
Factor In the Tax Hit If You Settle
If a hospital or collector forgives or settles your medical debt for less than the full balance, the IRS generally treats the forgiven amount as taxable income. Creditors who cancel $600 or more file a Form 1099-C, and you have to include the amount on your return even without the form.14Internal Revenue Service. About Form 1099-C, Cancellation of Debt
Two exceptions can reduce or eliminate that tax:
- Insolvency: if your total liabilities exceeded your total assets right 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.15Internal Revenue Service. What if I Am Insolvent?16Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments
- Deductible-debt exception: if you could have deducted 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.16Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments
An unexpected tax bill lands at exactly the wrong moment when you need cash for a down payment and closing costs. If you plan to settle a large balance before applying for a mortgage, work the potential tax into your numbers.