Mortgage Questions Regarding Old Collections! Please Help!

[C6Guy]

Hope everyone is doing well and I'd like to start off by thanking everyone in advance for help. So right now I'm sitting at a middle score of 678 with old collections and charge offs being at their 6th year and due to fall off next year. As such I started looking in to mortgages and their criteria for approvals. In general I've been getting mixed messages as far as the impact of old collections and aged off collections so I'm hoping some can help.

First question do old collections (as in aged off collections) have to be paid? Or more importantly stop you from getting a mortgage?

Second question: I'll be applying January 2016 so all baddies will have fallen per SOL and my fico should be over 700 at that time; would that be something that could lead to an instant approval with out needing underwriting?

3. Would the FHA guide lines affect me ever if the debt is older then 7 years?


Info about me I'll be a first time home buyer if that helps! Thanks again for the help!

[ShanetheMortgageMan]

FHA's current guidelines on collections - basically if it's over $2k total they need to be paid off, on a payment plan, or 5% of the balance is included as a monthly payment when calculating the debt ratio.  Doesn't matter if the collection is 1 day old or 10 years old, if it's on credit it'll apply.

For conventional 1-unit owner occupied purchases (or refinances) collections & charge-offs do not need ot be paid, although each lender can make overlay guidelines that would require collection & charge-off balances over a certain amount to be paid, or the underwriter can use their discretion to require them to be paid.

All loans need to be underwritten by a human being underwriter, but having no collections or charge-offs on credit will allow to avoid any guidelines regarding collections & charge-offs.

[C6Guy]

Thanks for the follow up response, I suppose the next question would be is there a difference between medical related collections and old charge offs. My old charge offs bank related I could pay off easily and have tried unsuccessfully for pfd letters. But the medical ones are something else. Also would a consigner help one get approval even with prior baddies? Either way my credit union said I'd need 5% down. The 3.5 down sounds a lot better guess I'll be doing some number crunching!

[ShanetheMortgageMan]

Yes, with FHA there is a difference between non-medical collections & charge-offs and medical collections.  Only non-medical collections totalling $2k or more are subject to the above guideline.

For conventional it doesn't matter.

A co-signer with better credit can make an underwriter feel better about your loan, but won't get the underwriter to ignore your delinquent debts.  With 680+ scores and being able to put 5% down, I'd strongly recommend that over FHA and 3.5% down.

[Photochick]

Appreciate the information, Shane!

[C6Guy]

Thanks for the heads up on all this info! I'm glad to know that my stupid mistakes as a kid won't haunt me as an adult. My cc debt wasn't high so I'm thinking that I might fall under that fha rule. Is there a reason why conventional is preferred wouldn't be a hard problem for me to do 5% down. Thanks again for the help!

[ShanetheMortgageMan]

Lower PMI costs, and with FHA and just 3.5% down the mortgage insurance for the life of the loan.  Current FHA mortgage insurance guidelines.