Posts: 8
Registered: ‎05-19-2007

Mortgage qualification with unpaid collections?

I am hoping to buy a home in the next year. My middle FICO is 557 right now, but I have been disputing accounts and cleaning up my credit, which has caused it to go up pretty quickly over the past six months. No bankruptcy or foreclosure.

My problem is that I have four unpaid collection accounts totaling about $20,000. I haven't paid anything on any of these accounts since February 2005, and the first delinquency was well before that on each of them. At this point, I could enter credit counseling and pay them off, but I am worried that it would kill my FICO score to make those derogatory accounts current.

Will mortgage lenders require me to pay all of those off in order to qualify for a mortgage loan? What is my best plan of attack?
Moderator Emeritus
Posts: 9,252
Registered: ‎03-19-2007

Re: Mortgage qualification with unpaid collections?

[ Edited ]
There is a lot more variables than unpaid CA's in the mortgage process.
Given the amount - I am sure they will stand out on your application.
IMO- You need to decide to PFD them or wait out the 7 years
I have done 2 Mortgages with CA's on my CR- however I had a ton of equity and all of the other items covered ($ in the bank, DTI, time in job field).  The CA's never came into the discussion. The underwriting guidelines are getting tighter all the time.
These were also Medical CA's that are not as big of a deal from my understanding  

Message Edited by Timothy on 06-24-2007 07:18 PM
Established Contributor
Posts: 630
Registered: ‎06-20-2007

Re: Mortgage qualification with unpaid collections?

First...let me say your doing the right taking the action to meet your past obligations.  I know everyone in here at times jokes like they are trying to beat the system...but my limited experince here is they are not, they are just a bunch of GOOD folks that either are or have been right where you are now. I don't think that gets said as much as it should.  That being said....Most lenders are not going to make a loan without those CA being paid. That is why its important to take a proactive approch now.
These CA's sound like they are still within the SOL so its a good idea to get some folks here to ring in on how best to go forward.  You may want to start by contacting the OC and see what they have to say about working something out. I know it can be a little scary after avoiding it for so long...buts its the only way to better scores.
9/18/08 TU=707 EQ=706 EX=702
Frequent Contributor
Posts: 489
Registered: ‎05-23-2007

Re: Mortgage qualification with unpaid collections?

I just purchased a home with a mid score of 562. What I can tell you is if the collections are medical related, the underwriter will usually ignore them. What they want to see if non medical collections under 5K. Fannie Mae will pre-approve you for a mortgage if your non medical collections are under 4K.
Regular Contributor
Posts: 255
Registered: ‎06-08-2007

Re: Mortgage qualification with unpaid collections?

Going subprime the lender will want you to pay any collection off that is under a year old. After that they will let you not pay up to 5K but will add 3% of the total collections to your Debt to Income. Sometimes lenders will wave the 5K and let not pay more but will add 5% to your DR. You must pay off all liens and judgments.
Going Prime (Conforming) - All must be paid! No way around it
Going Prime Non-Conforming - All liens and judgements must be paid but lender may wave collections.
Conforming means Fanniemae and non is up to the lender and Fanniemae will not by the loan.
Valued Member
Posts: 158
Registered: ‎06-15-2007

Re: Mortgage qualification with unpaid collections?

tha is why I like "va" lucky
Established Member
Posts: 12
Registered: ‎05-01-2007

Re: Mortgage qualification with unpaid collections?

BEWARE the subprime lender......1) they will charge you an outragous interest rate...I suspect 9-11% 2) they may have a prepayment penalty such that you cannot roll your loan to a better rate once you clear up your for the 1st 3yrs if you roll it you owe them the ENTIRE intrest for those 3 years..yikes! 3) They will hound the @$% out of you if you are the least bit late....
Folks like Bayview/Interbay funding....Countyrwide/AES....etc...will act like they are doing you a favor up front and you should be thankful for the loan given your score but you make a deal with the devil and they have no problems taking legal action once you sign all that paperwork at closing because in the fine print they have clauses that you agree to that would suprise you......

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