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One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

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Anonymous
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One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

My wife and I are currently in the process of getting pre-approved.  Today we met with our first mortgage lender, everything went well and would qualify for an FHA loan except for one blemish on my credit report which is a collection for $2005.00.  The amount went into collection on 11/05 and just got bought out by a CA from OC on 11/09.  Would it be wise to do a settlement or pay in full to the OC and have them delete from credit report? Also how long would it take to clear because the agent stated it needed to be paid by closing?  We will shop around more for the best rate, but know this will be a big road block.  Please advise..thanks is advance.

 

 

Message 1 of 7
6 REPLIES 6
hawkeye33
Regular Contributor

Re: One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

Personal opinion is that you're best to pay in full. I think you might be able to show documentation from the CA that it is paid in full, even if it hasn't yet shown up as paid on your credit report.
Message 2 of 7
happy0510
Established Contributor

Re: One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

Do what your lender tells you and pay at closing. Do not pay before!

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Current Score: 709
Goal Score: 750


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Message 3 of 7
hawkeye33
Regular Contributor

Re: One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

I was under the impression that as condition of loan, OP needs to pay the collection and show proof of payment by the closing date. The collection would need to be paid to the CA and would not be something that could be paid as part of the closing itself, unless I'm misunderstanding something. Now, if acceptable documentation of payment can be obtained very shortly before closing, there might be benefit to doing it as late as possible prior to close in case the older collection updates and pulls the score down when you pay it off.
Message 4 of 7
Anonymous
Not applicable

Re: One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

Thank you for all the feedback, my LO replied back today and stated, "If any payment is outstanding then let me know because outstanding collections will need to be paid and I have to account for that in cash to close." So my thought on that is if I don't pay the CA prior to closing, my cash to close would be $2005 addition to my down payment correct?  We are still shopping and have a couple of places in mind, but our LO advise that FHA loans will get more strict in terms of percentage down come the new year.
Message 5 of 7
happy0510
Established Contributor

Re: One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

Perfect.  They will just send a check to the collection agency at closing.  Don't risk lowering your score if you don't have to!

Starting Score: 615
Current Score: 709
Goal Score: 750


Take the FICO Fitness Challenge
Message 6 of 7
Anonymous
Not applicable

Re: One obstacle left before getting pre-approved for an FHA mortgage loan, please help!

We had a judgement against us that we paid at closing.  The title company was happy to set it up and we were happy to have it behind us with a strong paper trail to back us up in the future.
Message 7 of 7
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