Urgent FHA Issue

[jkdem85]

Hello everyone thanks in advance for any help!

I'm at contract on a loan. My lender agent said everything was great on my FHA application, even though I had 2 decent sized collections from 5 years ago that I told him about upfront. My credit score is in the mid 600s and I make over 85k a year. My co-buyer makes 25k a year and has a 725+ credit score. Anyway we qualify for great rate with 3.5% down and 0 closing costs or fees. Today the underwriter gets back to us and claims I need to pay off in full the two collection accounts. The lender agent is furious with the underwriter saying that I could either use the 5% of debt to income ratio or payment plan per the FHA guidelines, yet the underwriter still wants full payment. My closing is the 28th of March. My question is this, if I pay off these 2 accounts in full, I am almost positive that my fico score will drop as it will go from being a write-off from 5 years ago to current reporting. This should drop my credit score some 100 points. If this happens wont the underwriter simply say whoops too bad you no longer qualify? Or can he not do this as paying off the 2 collections was a condition to complete prior to approval? I am confused and upset that I was lied too about this. I am also nervous that my house will fall through now. Can someone please advise on this as I cant get a straight answer out of the agent or underwriter. Someone please advise, and note I dont want to start all over, I have to be closed by the 28th. Thank you.

[beanie7132]

You could try a pay for delete with the creditor/collection agency. Many are willing to delete the tradeline from your report in exchange for payment. Especially for something that is 5+ years old. Deletion may actually increase your score.

Just be sure that you get a promise to delete in writing before actually paying them. If you are unsure about the process, or if you should take the collection agencies word on deletion over a physical written promise, head over the Rebuilding board. There are many knowledgable members over there who can guide you.

With the help of the rebuilding forum members, I successfully got 5 deletions. Paying for only one of them. 

[fot1]

Tell them you want to pay them at closing.. You will pay the Title company when you pay the rest of the loan and they will issue you checks to pay the accounts.. No score drop. This is how I paid mine. I had a Charge off account  with Applied Bank and the amount was factored in with my closing cost. I was given a check in Applied banks name for the amount when I signed the docs.

[ezdriver]

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@fot1 wrote:

Tell them you want to pay them at closing.. You will pay the Title company when you pay the rest of the loan and they will issue you checks to pay the accounts.. No score drop. This is how I paid mine. I had a Charge off account  with Applied Bank and the amount was factored in with my closing cost. I was given a check in Applied banks name for the amount when I signed the docs.

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one of my buyer clients is doing exactly that ... paying off an auto loan balance at closing. Its the smart way to do it.

[StartingOver10]

^^^Exactly. The amount gets added to your closing costs so you have more $$$ to bring to closing but you don't risk the point drop.