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Mortgage Professionals - please help!!

Regular Contributor

Mortgage Professionals - please help!!

Does a charge off account need to be paid before closing or show good standing or current with active payments and/or payment arrangements?

14 REPLIES
Valued Contributor

Re: Mortgage Professionals - please help!!

That question is too vague to answer.

 

Every loan officer and underwriter will have different demands based on a nearly unlimited number of possibilities on your report.  

How old is the CO?  How big?  How many other COs are on your report?  How recent is your CO and other COs?  Are there any lates on other accounts since that CO?  Any PRs?  Any high utilization?  How's DTI?

 

It's too much to answer for a vague question, really.

 

Many underwriters will likely tell you to pay it off, if it's recent.

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Frequent Contributor

Re: Mortgage Professionals - please help!!

What type of loan?

Mortgage Loan Officer in Greater Chicago are plus 47 states.
Regular Contributor

Re: Mortgage Professionals - please help!!

Auto loan Charge off from 2014 with a balance of 14k that is majority of interest since the account reports every month. I offered to settle but they won't accept. I am trying to get a FHA loan. 

Valued Contributor

Re: Mortgage Professionals - please help!!

What's the SOL on auto loans in your state?

 

Worse than being forced to pay that loan off, the moment the creditor sees you attempting to get a mortgage, they may just sue you in court if it's within SOL.

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Regular Contributor

Re: Mortgage Professionals - please help!!

In Maryland SOL 3 yrs. This one is difficult
Established Contributor

Re: Mortgage Professionals - please help!!


creditwhisp wrote:

Does a charge off account need to be paid before closing or show good standing or current with active payments and/or payment arrangements?


Hi Creditwhisp,

 

The short answer is no.

 

The underwriting guidelines for FHA says any derogatory accounts that are over 24 months old do not need any kind of explanation.They also state that COs do not need to be included in your liabilities or debt. It sounds like you either have a lender overlay or the underwriter on your file is requiring the CO to be paid because this is a manual underwrite & the U/W wants the CO paid to give them a reason to approve the loan.

 

You should get a 2nd opinion from a different lender.

 

 

 

 

National Mortgage Banker.
VA Mortgage Expert.
Frequent Contributor

Re: Mortgage Professionals - please help!!

I'm in the Maryland area as well, and not saying that's the guideline for this area but our lender advised me to pay a charge-off from an auto account that was from 2011. The theory behind this was to get the approval through the automated system so we won't only have to rely on the manual underwrite for approval. Our lender did note that it didn't NEED to be paid, but since the amount was $1,400, I settled for half to get them to update to a $0 balance. 

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Regular Contributor

Re: Mortgage Professionals - please help!!

Thanks for the information!  What is a lender overlay?  I do believe my underwriting was manual.  The charge off is so high and wouldn't be able to come up with that amount of hard cash unless I take out a personal loan or line of credit. 

Frequent Contributor

Re: Mortgage Professionals - please help!!

A lender overlay is anything the lender makes a requirement above the minimum requirement. 

 

For example, FHA minimum is 580, but some lenders require 620. That's an overlay "aka" extra requirement. 

FICO8 Scores - 625TU / 640EQ / 649EX
On Mortgage Journey
Starting Mortgage Scores (Feb 17) 523EQ / 547TU / 564EX
Mortgage Scores Aug 17 624EQ / 649TU / 650 EX