More FHA questions.

[clintj57]

I have been pre approved for an FHA loan, and I've been approved by the automated underwriting system. I am currently in underwriting with the lender, and I have a concern about a collection account over $1,000 but less than $2,000 (was originally $1,800 I disputed the debt and it changed to $1,200). The loan officer told me not to worry about settling this debt, he don't think I'll be required to pay it. However I'm very concerned that I will. I'm afraid if I am forced to pay this debt it will cut into my required cash reserve. I close July 14th if not sooner. Some opinions and advice would be greatly appreciated.

[ShanetheMortgageMan]

Technically FHA doesn't require it to be paid, but it is an underwriter's call. 

If the cumulative amount of owing collections is $2k+ then capacity analysis has to be performed.  Details at http://ficoforums.myfico.com/t5/Mortgage-Loans/FHA-changing-collection-account-judgments-amp-dispute...

[clintj57]

I understand that if I work out a payment plan then that has to be figured into my DTI ratio as well correct? Would you recommend me working out a payment plan now or should I wait on the underwriter to force it? I also was wondering if my $500 earnest money is used at closing? If so that brings my cash reserve up another another $500 which helps tremendously. And finally, this might sound like an odd question, but the reason my reserve is low is because my wife's ex husband is taking her back to court over some custody/visitation issues. The large attorney payment showing on the bank statements, or the pending court litigation won't play a role in the loan getting approved or denied will it?

[clintj57]

Also shane, your advice and post have helped me out allot throughout my loan/home purchase process so far. I greatly appreciate it!

[ShanetheMortgageMan]

Yup, if it's on a payment plan then it'll be figured into your DTI.  I'd just wait until the underwriter says something, if at all.

The $500 earnest money deposit is applied towards your funds to close, correct.  As long as your wife isn't on the mortgage then neither of those should be an issue.

You are welcome, glad it's helped.

[clintj57]

Okay Shane, another question for you, or anyone who can answer it. I am getting really close to my closing date, I was asked to provide a few more things to the underwriter, they wanted my most recent check stub, and lox for all derogatory marks on my credit. In one of my lox I explained that I didn't agree with the collection acount. I read a thread of yours a while back stating that there was rules and stipulations of items over $1000 being disputed. Is my lox considered a dispute?

[ShanetheMortgageMan]

No, an LOE isn't considered a dispute.  Disputing it with the credit reporting agencies is considered a dispute.

[clintj57]

Just out of curiosity, why would I need the letter of explanation if I passed the automated underwriting, and why would the LO tell me to keep them very simple and "generic"?

[ezdriver]

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@clintj57 wrote:
Just out of curiosity, why would I need the letter of explanation if I passed the automated underwriting, and why would the LO tell me to keep them very simple and "generic"?

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Because a human underwriter will always review your file and can ask for anything they want to complete the file. Auto underwriting is simply a process to speed up underwriting of files ... not to supercede underwriting completely.

[clintj57]

Okay. Thanks guys for the help this whole process has me on pins and needles. I don't think I've ever been so stressed in my life. The LO is telling me not to worry, everything will go through just fine, but easier said than done. I've passed the auto underwriting, the house appraised for about $4,000 than the loan amount, and I'm set to close July 14th. Just hoping to get through this underwriting process with my sanity.