Collections & charge-offs
“You must pay every collection before closing” is not a universal conventional rule.
Fannie DU — one-unit principal residence
Current Fannie DU guidance says borrowers purchasing or refinancing a one-unit principal residence are not required to pay off outstanding collections or non-mortgage charge-offs, regardless of amount.
Fannie — other property types
For 2–4 unit owner-occupied properties and second homes, collections/non-mortgage charge-offs totaling more than $5,000 must be paid. For investment properties, an individual account of at least $250 or aggregate accounts over $1,000 must be paid.
Past-due accounts
An account that is simply past due rather than reported as a collection is different. Fannie says past-due accounts must be brought current.
Medical collections
Fannie excludes medical collection accounts from the cited payoff limits and does not require them to be paid under that provision; medical collections are also excluded from DU's credit-risk assessment.
Official guide baseline
Fannie Mae Selling Guide · Freddie Mac Seller/Servicer Guide
Agency guide and AUS findings control over summaries. Lender and mortgage-insurer overlays may be more restrictive.