When and if to apply for mortgages

[Anonymous]

Great forum, this is one of the best I've been reading, so thought I'd try asking for help here.

Apologies for the long story, but I want to demonstrate why I'm so unclear about our best next path.

First, out background.  I have about $20,000 in 5-6 year old collections on my report, two of which are from apartment complexes in 2004 that I had rented with my ex-wife for only a few months each.  Those two items together total about $10,000.  Currently, they're due to drop off in September, 2011, along with the other $10,000 in debt (credit cards and cellphones).

In addition, there are about $3000 in newer collections (default dates in 07) from items my ex-wife had in my name, but I wasn't aware of.  Long story short, I was blind and stupid.  I'm not denying that these are mine, just adding color to the background.  These items won't disappear until probalby 2013 or 2014, and are credit cards.

Right now, I'm staying with my new wife and her family overseas (read as "rent free").  I have a job currently paying me about $140k/year where it's either remote work (allowing me to work from here) or where, when I do have to be in the U.S., I can live in a hotel, drive a rental car, etc.  In other words, very little of my salary is spent in most months.

I'm just coming out of deferrment on $50,000 in student loans, but those are all in good standing now.  I plan to pay those off by 2015 with a couple hundred extra every month.

Which brings me to my current question.  Morality of paying the old debts aside (I DO feel a moral obligation to pay them by the way), most of this stuff drops off in the fall of 2011.  Also, if I don't pay these debts off, I'd probably have about $130,000 saved up by then (we have about $30k now).  If I do pay the debts, then we'd still have close to $100,000 saved.

I'm pretty sure the $3000 is a no-brainer, they're too recent and should be paid off on my report.  But there are several ways I think we can proceed, which are best, or is there a different approach that is best for us?  We're looking in the Dallas/Ft. Worth area.  We can either go "reasonable" and buy a nice home for around $150,000, or buy our "dream" home for around $270,000.

My current middle score is about 610, so I know I'm getting close.

1.  Pay off all the debts first, and have them all paid off by March 2010.  If we do this, how much should we have saved up?  We're looking in the Dallas/Ft. Worth area. Should we wait until 2013 and pay cash for the reasonable house?  Should we buy sooner and be willing to mortgage most of the price of our "dream" home?

2.  Don't pay the debts, save all our money for 2 years, and buy a reasonable home for cash at the start of 2012, or put 50% down on the "dream house" and mortgage the rest?

Including the student loans and all the other factors, when would we qualify for a decent mortgage?  How much would we qualify for (best guess)?  Do we even want to do this?  The idea of buying the home for cash is also very appealing, and we can save another 4-5 years mortgage free in the reasonable house and buy our dream home.

Thanks for the advice, I know that I've made some huge mistakes in the past, I'm not denying that or trying to get out of paying for them.  I just honestly don't know where we stand with all this, and would appreciate some opinions.  Right now, my best guess is wait the 2 years for most of the "baddies" to drop off at the 7-7.5 year mark, but then would I still have to pay them anyway?

Sorry if this is in the wrong forum, I know I have multiple questions here, so I wasn't really sure where to put it.

[RobertEG]

The fact that you are considering applying for a mortgage loan rather than a lower principal loan may become a factor.

You are relying upon old OC account delinquencies dropping from your CR at 7 years, and OC and CA reporting to drop at 7 1/2 years from the DOFD on the OC account, pursuant it FCRA 605(a).  And that is normallly the case.  But not always.

Higher-end lendors, such as mortgage lendors, were able, upon enactment of the FCRA, to secure a total exemption of these exclusion dates set forth in FCRA 605(a) for any credit transaction involving a principal amount of $150,000 or more.  That exemption is explicitly stated in FCRA 605(b).

What that means is that if you apply for a mortgage of $150K or above, the lendor may still request a credit report that includes all prior derogatory information that is still in the CRA database, regardless of any time bar.

[Anonymous]

Thanks very much RobertEG, I definitely wasn't aware of that fact.

I'm really trying to do the right thing and clear up my old debts, but now I'm wondering, in view of what you said, will I be penalized forever?  If that's the case, I have less incentive to pay these off.

If it's a mortgage for less than $150,000, then the standard FCRA rules would apply then, and it will drop off?

Either way, I guess I'm trying to understand the benefits to paying off these old collections, but also the consequences of not paying them off.  With our income, I'm really planning on a mortgage being about the only new credit/loans that we'll need in the future, since we plan to pay cash for everything else. 

Is my best bet to talk with a mortgage broker or other lender?  I've honestly been concerned about negatively dropping my score by asking prematurely, but maybe my situation is weird enough that I should get their insight?

If that's the case, anyone have recommendations about who I should work with?  I've heard good things about Texas Lending?

Thanks for your feedback!

Message Edited by NPA on 09-24-2009 11:23 PM

[RobertEG]

The peril you face with not paying old debt, whether it resides with an OC or a CA, is that they can take you to court and sue you for the unpaid debt.

Dont confuse credit reporting with obligation of debt repayment. They are totally separate. Debt never "drops off."

If you are considering not paying a debt, they can sue you for it, regardless of any 7 or 7 1/2 year dates set forth in the FCRA, which deals only with credit reporting..  Then you have to decide what to do if they sue.  You can go into court and assert dismissal of the legal action on the basis of expiration of the SOL in your state.  That requires legal knowledge of how SOL works in your state.  Some state SOL laws have reset provisions based on any prior payments or even offers to pay.

I wont proffer legal advice on a forum.  It is too complicated, and dependent upon both state laws and what has happened with each account in the past.

I would also not listen to a mortgage broker for legal advice. 

I think you need to first hire a consumer credit lawyer in your state.

Message Edited by RobertEG on 09-24-2009 11:45 PM

Message Edited by RobertEG on 09-24-2009 11:49 PM

[Anonymous]

Thanks again for your terrific advice RobertEG.

Let's assume for the moment that I'll pay these off.  I anticipate I could have that finished by March 2010 or so.

With these old collection accounts paid off, I know lenders will still see them, but they'll be paid, hopefully by then I'll also be at least in the 620s. (my middle again is about 611 at the beginning of this month, with only deferred student loans and one credit card at less than 10% of its limit, paid off every month).

Is it too soon to talk to a mortgage broker now?  Am I better waiting until my debts are paid off in March to contact a broker?

Basically, I'm just trying to stop making mistakes at this point and actually start fixing my previous errors, but I don't know the best time frame for everything.

Thanks again, this forum is THE best!

[RobertEG]

When your CR warrants application, I cant tell you.  All I can tell you is how your CR will progress.

Make decisons from there.

I hope you have good OC account records. If you don’t, you cant figure it out yourself.

 

Look first at your records for each of your OC accounts.  Ignore for a moment any CO or CA postings to your CR.

Each prior delinquency under an open OC account must drop from you CR, under FCRA 605(a)(5), at 7 years from its individual date of monthly delinquency.  That has nothing to do with DOFD, CO, or CA reporting.

 

OK, now on to OC and CA reporting.  If any account was then subsequently charged off (CO) by the OC, or referred to a CA, and they posted to your CR, then the drop off date of the CO or CA is governed by separate provision of the FCRA, and is set forth in FCRA 605(c).  Congress wanted to set one date certain when a CO or CA posting must drop from your CR, regardless of all prior dates of what you did and what they did. 

 

The date-certain that congress mandated for OC and CA accounts was the date that you first went delinquent on the OC account (your 30-day late).  It is typically called your DOFD.  If you then went 60/90/120+ late, it does not change your DOFD.  If you made later payments (DOLA), that also does not change your DOFD.  A date frozen in time by your 30-day delinquency, not by what they report or do.

 

Know your DOFD.  CO and CA drop off dates flow only from that one, single date.

FCRA 605(c).