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Registered: ‎01-31-2012
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Charge-offs automatically cause mortgage rejection?

Hello all.

 

My wife and I have seen significant score jumps since we began seriously monitoring and learning about credit.  We want to buy a house at end of this summer.  We are almost willing to settle for a higher rate and less house-just to get into a home and out of a rental.  I think many will understand- we just want our own space without annoying neighbors!:robotmad:  

 

Anyhow, we both have charge-offs, one is a vehicle repo/charge-off, the other is a CC.  They are pretty old, both ~5 years.  My concern is going to bank and wasting the time and inquiry when the LO sees charge-offs and says "no-way"

 

Are we a little too ambitious?  Do we stand any chance of getting a mortgage?  We are both within the qualifications of an FHA loan.  I know the inquiry is probably not a big deal and perhaps even with a rejection we may come away with some advice on what puzzle pieces we need in place in order to get a loan approval letter.

 

Any thoughts on charge-offs and getting a mortgage?


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Re: Charge-offs automatically cause mortgage rejection?

It likely depends upon their status, paid or unpaid.


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Registered: ‎01-31-2012
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Re: Charge-offs automatically cause mortgage rejection?

That makes sense.  I suppose I should note they are unpaid, one is in collection and despite the flaming I will probably get for saying this-I feel they are beyond a point of no return and we have no plan to pay them.  We are in a position where paying them means using our down payment money, and leaving them unpaid may disqualify us from a mortgage.  In either case waiting it out will be the best option for us.  I know people will say deadbeats, or be nice and call us fiscally irresponsible, but many early 20-somethings are which is why credit cards and auto loans should not be extended to students without extremely careful consideration.  Looking back I feel I was not fully aware of the implications and repercussions of defaulting on a loan.  But at the time I probably felt I was.  I actually feel I was taken advantage of.  But others will view this differently I am sure. 

 


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Re: Charge-offs automatically cause mortgage rejection?


jaypeedee wrote:

That makes sense.  I suppose I should note they are unpaid, one is in collection and despite the flaming I will probably get for saying this-I feel they are beyond a point of no return and we have no plan to pay them. 

 


You might be a bit disappointed when you find out that there will most likely be no flaming to be had on these wonderful forums.

And on that note, how much is this unpaid collection going for on the collection's market these days?


 

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Re: Charge-offs automatically cause mortgage rejection?

You may have to wait until they fall off.

 

I've seen plenty of threads here where people had to meet conditions, write letters of explanation, and so on before getting mortgages. Many times paying old debts was a condition.


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Re: Charge-offs automatically cause mortgage rejection?

@frugalrican I am not sure what these debts are going for in terms of what they paid for them, however, the one in collection is with portfolio recovery.  If I had read a few posts in regards to good results in the PFD department, I would call them up and offer to pay up to 50% of it.  However, I do not want to restart the clock on it, I do not want to be involved in a lawsuit either.  Though I believe it is out of the SOL, In Illinois there are conflicting views by the courts on the issue itself-I read alot about it :smileyfrustrated:  The repo is a different story, promissary note involved and could mean within the next 5 years it could come back to haunt me.

 

I know why a bank would turn us down, I just wondered if others had experience with the issue.


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Re: Charge-offs automatically cause mortgage rejection?

I believe FHA has a new requirement than if the sum of all open collections is greater than $1k, they have to be paid.

 

Conventional doesn't have that restriction, but they'll still go under some scrutiny.

 

PS- Don't feel "bad" about not paying a collection. It's a financial decision, and results in specific and reasonable consequences, which happens to include problems with obtaining a mortgage :smileyhappy:

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Registered: ‎01-22-2008
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Re: Charge-offs automatically cause mortgage rejection?


cassembler wrote:.

 

PS- Don't feel "bad" about not paying a collection. It's a financial decision, and results in specific and reasonable consequences, which happens to include problems with obtaining a mortgage :smileyhappy:


+1 And sometimes it comes down to not paying out of principle.  Like a post I saw on the rebuilding forums where a poster had a CA for ~$400 for not returning a VIDEO!!! 


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Re: Charge-offs automatically cause mortgage rejection?

I am in Under Writing for the USDA Guarantee Loan.  I do have a Charge-Off on my credit report and received pre-approval, but I had only one baddie one year old.  My Mortgage Broker told me if I pay it get an PFD but pay it in one lump payment or wait to it goes to Under Writing because it has stop reporting and let them decide.  I had conditions but paying the Charge-Off is not one of them. 1.  Call a Lender to find the minimum Fico requirements mines was 640, 2.Dont let the Lender pull reports you should take copies of your report directly to their office so that you know where you stand,  3. You will have to pay all collections in the recent 2 years I think this will change soon where all have to be paid if they equal to $1000 or more, 4. You will have to have at least 3 tradelines reporting for at least one year 5. and all make payments on time.

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Registered: ‎06-23-2009
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Re: Charge-offs automatically cause mortgage rejection?

My wife and I recently received a conditional approval with very few conditions, none of which are to pay charged off collections.  I had 3 on my report, however they were all pretty old - 6 & 7 years.  The largest one was/is approx. $2600 for a credit card and is 6 yrs old.  2 others for about $2k combined have since dropped off.  My wife has an old charge off about 6 yrs old as well- old cell phone bill or something, and about a $1,500 credit card.  Both were from a previous marriage and divorce. 

 

As far as our scores, mid came to 640 and back end dti @ 46%.  Not the best figures for us to apply with, but we tried for an FHA loan through the home builder anyway, and so far, things are looking good.

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