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Valued Member
Posts: 59
Registered: ‎02-20-2012
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Do you have to pay off old collection for mortgage?

[ Edited ]

I am thinking about applying for a USDA or FHA loan in October. I have read sooo many posts and blogs but am confused about the collection on my credit report. It is for Fidelity Information Corporation for 'leasing'. I have disputed with all three creditors but they won't remove. They say the original balance is $1445 and with interest it is up to $2229. THe DOFD is 11/06. My question is, they keep updating every couple of months all three CRA's with the new balance that includes the interest. Is this considered updating an account to make it current? Does this make it look worse to an underwriter? I initially sent a certified letter two months ago requesting a PFD that they ignored. When I contacted them about a PFD this month they said they wouldn't do it unless it's paid in full, they also did a hard pull on Experian which resulted in my immediately discontinuing trying to work with them to settle because they dinged my report for no reason. I have since mailed a very well worded letter to Experian about how they had no right to access for a hard pull as they are not a credit issuing company, employer, etc and do not have a permissible purpose to check my credit report. I have also sent them a debt validation. 

 

The only other negatives on my report are CC lates as recent as 02/06 which will fall off next year. I have had many things removed from my CR after requesting PFD's or disputing directly with the CRA's but Fidelity is the one that won't budge and the largest. Any help offered would be wonderful!

 

ADDED 5/28 1:20am- Thank you all for contributing! Okay, I feel better about the CO, not great, but better knowing that if I do decide to do USDA, I can be approved. Now my last question is, I started 11/08/10 at my job. Do I have to wait at least exactly 24 months before I can apply for USDA loan? Meaning, I should not apply until after 11/08/12?


Starting Score: Walmart myfico 664 TU Lender Pull 690 EQ Lender Pull 669
Current Score: Walmart myfico 698 TU Equifax- 686 Experian- 692 Transunion- 700 Lender Pull 7/18/12
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Regular Contributor
Posts: 161
Registered: ‎02-17-2011
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Re: Do you have to pay off old collection for mortgage?

The DOFD is a date that cannot change.  In other words they cannot make the debt current if  you have not paid on it ect. 

According to my mortgage broker:

fha as of July 1 will requre that charge off to be paid.  USDA will not require collections to be paid.  You will however most likely be required to explain the circumstances of the collection.  A middle score over 640 will help a lot!  I cannot remember your dofd while writing this but it appears close so I would not rush out and pay it right now.  If you do that will bring the account current and possibly hurt your score.  My broker was unclear right now if the collection can be paid at closing or not.  If that is the case, then your score would  not be damaged as to stop you from closing.  Personally, I have decided to go USDA for various reasons, 1 collection that I refuse to pay and mortgage insurance.  Of course the property you chose would have to be USDA eligible.  You can check the addresses on their site. 

 

Here is the info sent to me:

Prior to April 1st – “FHA does not require that collection accounts be paid off as a condition of mortgage approval.”   A low credit score or bad credit score was all that would stop you from financing a FHA loan.  If you had a high enough credit score, most lenders would overlook the collections.

New collection guidelines-  “If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments- paid as agreed) or paid in full at the time of, or prior to closing. If the total outstanding balance of all collection accounts is less than $1,000, the borrower is not required to pay off the collection accounts as a condition of mortgage approval”.



March 2011 FICO® ~ 595 TU, 605 EQ, 525 EX
Aug 2012 Lender pulls: 702 TU, 667 EQ, 660 EX
New Member
Posts: 5
Registered: ‎03-27-2012
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Re: Do you have to pay off old collection for mortgage?

Yes, when getting a FHA loan you will be required to pay off all collections on your credit report and after you've paid you have to write a letter explaining why you defaulted in the first place. I had three delinquent accounts on my credit report, two small and one around $2000. I negotiated a pay for delete with creditors/ collection agencies and it worked. I know a lot of people that aren't successful with pay for delete but if you have the time and patience, it's worth it.  And yes, depending on the balance, if you contact a collection agency and inquire about a pay off amount to satisfy the account, they will investigate your intentions by doing a hard pull on your credit (as they are legally within their right to do so if you have a outstanding debt). Most likely, they will  refresh your account adding interest, and fee's, starting the hard ball process. If you have mortgage inquires on your report, the hard ball will continue. Do you actually owe Fidelity or is it an error? If you owe them, I'd negotiate a PFD for the original balance. Not only will it rid you of headache but your credit score will improve about 50 points, maybe more. 

Regular Contributor
Posts: 161
Registered: ‎02-17-2011
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Re: Do you have to pay off old collection for mortgage?

DOFD is 11/06 which means its not effecting the score by that much right now.  Unless of course you have very limited credit.  So paying it off, I seriously doubt will raise the posters score by 50 points.

March 2011 FICO® ~ 595 TU, 605 EQ, 525 EX
Aug 2012 Lender pulls: 702 TU, 667 EQ, 660 EX
New Member
Posts: 5
Registered: ‎03-27-2012
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Re: Do you have to pay off old collection for mortgage?

You may be correct. I was just speaking from experience, different circumstances, different results. I had an old account from 2007 in which I paid off along with two other very small accounts. From that alone, I got a 50 plus point increase. Keep in mind that I had them removed from my credit report, not an updated " paid in full or account paid". Payment history accounts for about 35% of your score which includes delinquent collections, judgments, etc. I don't know for sure and I don't think anyone else knows how much of  an impact delinquent accounts have over time (% wise), but any additional points are always beneficial. 

Valued Member
Posts: 59
Registered: ‎02-20-2012
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Re: Do you have to pay off old collection for mortgage?

I definitely saw a raise in scores when I got CMI removed using PFD. Fidelity won't remove unless I pay $1445 I believe. So now it looks like I either get a USDA loan and stop renting in Van Nuys for $725/mo and buy a house in boondocks Castaic/Val Verde and pay $150,000 for a house. Or, I pay this collection and apply for an FHA loan and relocate to Las Vegas where I can find a house for $40,000-$75,000. I liked the USDA loan because I didn't need a down payment and I only have $2000 saved and I don't want to touch my 401K. I make about $2600 (net) on average but it fluctuates anywhere between $2400-3300 (net) depending on how much I fly. (I'm a flight attendant based out of LAX, so I can live anywhere). 

 

Just don't know if I should continue renting in LA until next Dec, or take the jump and buy while costs are low and interest rates are low, and get a year and half head start on building equity if the market goes up or just putting those funds towards my own home that will be there for me when I retire if the market doesn't ever go up. Seeing as how I no longer want to live in a studio and I have 2 cats and a maltese dog I will move into a 1bedroom apt when my lease is up in Sep if I don't buy something and in LA, I'm lookng at paying no less than $900/mo. That's $12,600 that could go towards a house.


Starting Score: Walmart myfico 664 TU Lender Pull 690 EQ Lender Pull 669
Current Score: Walmart myfico 698 TU Equifax- 686 Experian- 692 Transunion- 700 Lender Pull 7/18/12
Goal Score: 720


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Posts: 17,419
Registered: ‎07-14-2009
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Re: Do you have to pay off old collection for mortgage?

FICO does not look a the balance of a collection; only that it is a collection. The collection can be $0 or $10,000; FICO will score both the same.

 

The score increases talked about here were caused by some other reason. They was not caused by paying the collection.

 

 

Valued Contributor
Posts: 3,302
Registered: ‎06-09-2010
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Re: Do you have to pay off old collection for mortgage?


MarineVietVet wrote:

FICO does not look a the balance of a collection; only that it is a collection. The collection can be $0 or $10,000; FICO will score both the same.

 

The score increases talked about here were caused by some other reason. They was not caused by paying the collection.

 

 


+1

 

Seems the increases were from PFD's (pay for delete)........ But not 100% sure....

 

Paying off a collection will not have any impact on your score as stated earlier. 

Good Luck
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Frequent Contributor
Posts: 291
Registered: ‎02-25-2012
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Re: Do you have to pay off old collection for mortgage?

We are going USDA with one unpaid CO from Nov 05 and broker hasn't said anything about paying it off. We are going with a loan that's underwritten in house, so I'm pretty sure he would have told us at this point if we needed to pay it off.

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Established Contributor
Posts: 799
Registered: ‎09-27-2011
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Re: Do you have to pay off old collection for mortgage?


Familywantsahouse wrote:

We are going USDA with one unpaid CO from Nov 05 and broker hasn't said anything about paying it off. We are going with a loan that's underwritten in house, so I'm pretty sure he would have told us at this point if we needed to pay it off.


USDA does NOT require baddies be paid off...just that the median FICO score be 620 or above with a demonstrated ability to repay (i.e. solid work history, income verification, etc.). This from a very prominent Indianapolis mortgage lender I have worked with multiple times.

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