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New Member
Baseballguy
Posts: 3
Registered: ‎01-13-2013

Question about getting a mortgage after debt settlement

My current status is as follows.  myfico says 700 transunion, equifax 669, Credit Sesame 675 and my wife is myfico 693 transunion, equifax 645, and credit sesame 683 as of today.  We are teachers of 18 and 19 years with tenure, with masters degrees and make 133300 per year and pay 1800 in debt per month (around 15% DTI).  

 

In 2009 we did not make nearly as much as we do now and  had 10 different credit card accounts with high balances and were making our monthlies and that's it.  We were both getting our masters at the time so monthly cash was very low as we were living paycheck to paycheck.  I had to have surgery at the worst possible time and even though we were insured we couldn't pay for everything and fell behind on our credit card bills.  

 

They all went to collections and I decided to try to settle all the debts for less than the total.  I did account by account until finally settling the last two in June 2012 and November 2012.  Since I have opened two new cards and have used them sparingly and payed them down to leave just a little and my scores have risen nearly 60 points for both transunion and equifax.  We currently have a mortgage on another house that is a two hour drive away that we have been collecting rent on the last 3 years and been claiming the income on our credit report.  Have a year left on a car loan.  

 

My question is can we get approved by an underwriter with recent finishing of debt settlement?  Equifax is reporting late on the account that was recently settled but the account had been closed for 3 years, will this effect my loan chances?

 

Thanks any response will help relieve our stress because we'd like to purchase in June and we will have $22000 saved by then with savings and IRA.

New Member
Baseballguy
Posts: 3
Registered: ‎01-13-2013

Re: Question about getting a mortgage after debt settlement

[ Edited ]

Forgot to add

 

In addition we want to purchase in Illinois, not in the Chicago area, and looking in the 250000 to 300000 range.  The house we currently have a mortgage on is worth less than the mortgage as the market has dropped in that area.  It is now only worth 75000 but I owe $100000 due to refinance in 06

 

Thanks for any help

 

 

Valued Contributor
MovingForward_2012
Posts: 3,406
Registered: ‎12-19-2012

Re: Question about getting a mortgage after debt settlement

Congrats on your successful rebuilding! I am assuming that all though your current mortgage is underwater, that you still receive enough rent money to pay the full mortgage without having to come out of pocket?

Do you each make $133,300 a year or is that the total income of both your salaries? Doesn't really matter as $133,300 qualifies you for a $300,000+ based on front end ratio.

I think that if the collection was first reported 3 years ago, you are OK. But you can't have any new collections report within the last 12 months.

To qualify, the middle score that is lower between the two of you must meet minimum scoring requirements, which is usually a 640 and some lenders will approve 620 but you need to find a broker that works with one of those lenders or try small banks as sometimes they have more lenient requirements. However, your current scores meet the standard 640 minimum. Credit Sesame, Credit Karma and the like, provide FAKO scores which are meaningless. Your true fico scores are what count. The Experian fico can only be pulled by a lender.

Based on you and your wife's fico scores, you both qualify for a mortgage based solely on your scores but your income, and other things you listed in relation to your rebuilding efforts, look good as well. So I think your chances of qualifying for a mortgage in June are very good! Just continue to garden and keep your utility low and both of you should have no problems qualifying for a mortgage.
Cards: Orchard Bank ($1100) | Cap1 Cash Rewards ($2500) | Chase Freedom ($1000) | Best Buy ($2500) | Discover It ($1000) | Barclay Rewards ($2500) | Current scores: EX FAKO: 684, CK TU: 649, FICO EQ: 680, FICO TU: 698, FICO EX: 658 Happy Homeowner Since 2/6/13! :smileyhappy: Last App: 4/5/13 Gardening until July 2014
New Member
Baseballguy
Posts: 3
Registered: ‎01-13-2013

Re: Question about getting a mortgage after debt settlement

[ Edited ]

Thank you for the reply. Actually we get 650 a month for rent which pays for the mortgage but i have a home improvement loan as well that is another 350. I would love to refinance. And yes the 133000 is combined income between the wife and I. So is it a problem with the home improvement loan?  We make 11000 a month. Our total monthly debts including the mortgage on the rental house is 1800. I was hoping this would be ok. 

Valued Contributor
MovingForward_2012
Posts: 3,406
Registered: ‎12-19-2012

Re: Question about getting a mortgage after debt settlement

No your debt to income ratio is still OK given the home price range you are looking at. I didn't know the $1800 included the home improvement loan.
Cards: Orchard Bank ($1100) | Cap1 Cash Rewards ($2500) | Chase Freedom ($1000) | Best Buy ($2500) | Discover It ($1000) | Barclay Rewards ($2500) | Current scores: EX FAKO: 684, CK TU: 649, FICO EQ: 680, FICO TU: 698, FICO EX: 658 Happy Homeowner Since 2/6/13! :smileyhappy: Last App: 4/5/13 Gardening until July 2014
Valued Contributor
JM-AM
Posts: 3,303
Registered: ‎06-09-2010

Re: Question about getting a mortgage after debt settlement

You may have to wait depending on how the collections reported once you paid. YMMV

 

Speak to a LO or Broker and let them know upfront. Bring a copy of your reports and let them see it before they pull a new report. Only let them pull your credit report if they know for sure you will be approved. Personally I would choose a broker as the broker does not want to work for nothing and doesnt want to waste time on a loan not approvable.

 

Even if you have to wait til the end of the year, just stay on track and make all payments on time, dont open any other new tradelines unless you absolutely have to, while its not always a deal breaker opening a new tradeline, it just makes the process easier.

Good Luck
May all your dreams and wishes become a reality!
Valued Contributor
MovingForward_2012
Posts: 3,406
Registered: ‎12-19-2012

Re: Question about getting a mortgage after debt settlement

Sometimes you can get away with one unpaid collection (or two) if your score is high enough and the date of first delinquency is at least 12 months old.

I have an unpaid collection on my report from 2009 and I only needed to write a letter of explanation for it. Worst case, they would have wanted me to pay it but I don't have to for approval. My mid fico is 703.

So being that worst case they would want to see it paid, I don't see how paying a collection that is more than 12 months old will hurt you if you have a min mid fico of 640 after it is reported paid. You are simply doing what the underwriter may have asked you to do anyway in the conditions for approval.
Cards: Orchard Bank ($1100) | Cap1 Cash Rewards ($2500) | Chase Freedom ($1000) | Best Buy ($2500) | Discover It ($1000) | Barclay Rewards ($2500) | Current scores: EX FAKO: 684, CK TU: 649, FICO EQ: 680, FICO TU: 698, FICO EX: 658 Happy Homeowner Since 2/6/13! :smileyhappy: Last App: 4/5/13 Gardening until July 2014

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