Apply for Mortgage b4 dealing with Collections Account

[Anonymous]

Hello-

I currently have a CA on my CR that I am disputing and will probably try to settle.  From other posts on this site, a lot of people have not had the best of luck with this CA (Afni) and so I'm thinking it may take a while before I get this thing resolved.

My question is, is it terrible to go ahead and apply for a mortgage with that baddie on my CR?  If I have an explanation for it, will lenders take that into account?  My scores as of a month ago are 680 (TU) and 738 (EQ).  Since then I've paid off a credit card so I expect that they have gone up even higher.  

FYI - I'm a first time homebuyer and I'm trying to get started in the homebuying process so I can take advantage of the federal tax credit.  

Any thoughts/advice?  Thanks!

[Anonymous]

One of the more important factors will be the date of the collection. If it's newer, you'll likely be denied. Your score will take a hit from the mortgage inquiry and i believe the denial will stick with you as well.

That being said, sometimes things can be overlooked if the rest of your file is strong. It's hard to say not knowing the details of the collection situation, and even then it will probably be dealt with differently by different lenders.

ETA - Open disputes can also get you denied in some cases too, so tread carefully

Message Edited by ladyofnight on 06-11-2009 03:09 AM

[RAISEUP]

Be careful, typically depending on the amount you will not have to pay the CA until at closing. I would let your lender determine that. DO NOT pay before you are approved though. This can have an adverse effect on your current scores.

Good luck

[Anonymous]

Here is the link to the other thread where I've discussed this collections account issue:

http://ficoforums.myfico.com/fico/board/message?board.id=rebuildingcredit&thread.id=68904

Basically, this is an old debt but Afni is the third collections agency to purchase it.  I have documents of letters I've sent and bills showing the OC crediting my account for the charges, but this thing still lingers on...

Ladyofnight - I wasn't aware about open disputes getting you denied so thanks for that information!

[Anonymous]

Read through your other thread a bit and i'd have to agree with not paying it before getting pre-approved unless your lender tells you it absolutely needs to be paid before closing. It is an old debt (I suspected as much because your scores aren't reflective of a new collection) and i think you could explain it away with the documentation you have.

Programs like FHA often require 12 months clean history so it may not even come up at all.

[Anonymous]

My husband has 4 collections open on his CR. We will be closing next week on our house and they are requiring him to pay them off at the closing. One was even from 10/08, less than 12 months ago and they still approved our loan. He, however, has 3 years of clean history - paying all accounts on time and no other debt.

I had to write a letter to explain his past and why those collections are there though.

You definitely dont want to pay them off before closing, since they will update the date of last activity, making your collection look new again and that will lower your scores.
And I wouldn't dispute them either. That may hinder you from being approved.

Best thing to do is just leave them alone if you're planning on applying for a loan soon. Be upfront with your lender about the collection(s) and ask them what they think. If they say pay them off now, before closing, run out the door.   They dont know what they're talking about.
We were very upfront with our lender, telling them all the things that may impact us from getting a loan. And they told us what may be required of us - writing a letter, paying the collections at closing, etc. to be approved.