FHA Mortgage with a Charged off Credit Card?

[tangerinze]

Hey guys! Trying to apply for an FHA mortgage but I have two charged off cards from over a year ago. 

My scores are high enough (600, lowest 585) to qualify for an FHA mortgage but. 

1) I settled one charge off with a collection agency in april but it still shows a balance and says "account delinquent 180 past due" on my credit report- should it not? If that is updated it should make my score go up correct?

2) I have another that is listed as "charged off as bad debt". I do not have the money to make a payment in full or any lump sum settlement. What would be the best way to approach this- its over 2k and no where near the 7 year mark. Should I arrainge payments on it & do I have to be paying for 3 months (if you're familiar with FHA rules). 

Thanks. 

[Anonymous]

I would suggest posting this in the Mortgage forum - I personally am not a FHA expert but I am going through a FHA mortgage for my first home right now.  My understanding is that any unpaid Charge Offs must be paid before you can get qualify for a FHA mortgage - if you can get a written payment agreement from them then you may be able to qualify after showing 3 months of regular payments.  For the Paid Charge Off which is reporting a balance, I would suggest disputing it on each credit report where a balance is showed so that they perform a verification and update to the correct $0 balance.  Having a Paid Charge Off on your credit is OK with FHA but not an Unpaid non-medical.

My personal opinion is that if you cannot afford to pay it off/settle it, then you probably aren't quite ready for the financial burden of purchasing a home just yet and that you may want to delay the home purchase until you are in a better financial position.

[Anonymous]

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@Anonymous wrote:

I would suggest posting this in the Mortgage forum - I personally am not a FHA expert but I am going through a FHA mortgage for my first home right now.  My understanding is that any unpaid Charge Offs must be paid before you can get qualify for a FHA mortgage.  For the Paid Charge Off which is reporting a balance, I would suggest disputing it on each credit report where a balance is showed so that they perform a verification and update to the correct $0 balance.  Having a Paid Charge Off on your credit is OK with FHA but not an Unpaid non-medical.

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I respectuflly disagree with the dispute.  I wouldn't dispute anything right now if you're going to be applying for a mortgage loan.  Most lenders will not process your application if there are any disputes on your CR.  Personally, I would speak with a lender, before applying, and they can give you a lot of the details.  It may just be that you're required to provide a Letter of Explanation explaining the derogatory.  In other instances, you might still receive conditional approval based on some actions that you need to take for the derogatory.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

I would suggest posting this in the Mortgage forum - I personally am not a FHA expert but I am going through a FHA mortgage for my first home right now.  My understanding is that any unpaid Charge Offs must be paid before you can get qualify for a FHA mortgage.  For the Paid Charge Off which is reporting a balance, I would suggest disputing it on each credit report where a balance is showed so that they perform a verification and update to the correct $0 balance.  Having a Paid Charge Off on your credit is OK with FHA but not an Unpaid non-medical.

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I respectuflly disagree with the dispute.  I wouldn't dispute anything right now if you're going to be applying for a mortgage loan.  Most lenders will not process your application if there are any disputes on your CR.  Personally, I would speak with a lender, before applying, and they can give you a lot of the details.  It may just be that you're required to provide a Letter of Explanation explaining the derogatory.  In other instances, you might still receive conditional approval based on some actions that you need to take for the derogatory.

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Good point - it depends on the timing. I think best case scenario, they will need to show 3 months of payments to qualify for FHA so they would be waiting a while to apply since it seems like no payment arrangement exists yet. My situation was similar where I knew I would be applying for a mortgage in a few months and my mortgage broker advised me to dispute a couple inaccurate items on my report since there was plenty of time for the reinvestigation to conclude. The dispute comments are typically removed after completion of the investigation when/if the accounts are updated. Any dispute comments that remain can be removed via a phone call to the bureaus Dispute department. 

In my case it was far better to wait for the disputes to play out rather than try to apply early and have to explain everything when I'd have to wait either way.

Every situation is different though so I definitely agree on speaking to the loan officer prior to applying for anything

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

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@Anonymous wrote:

I would suggest posting this in the Mortgage forum - I personally am not a FHA expert but I am going through a FHA mortgage for my first home right now.  My understanding is that any unpaid Charge Offs must be paid before you can get qualify for a FHA mortgage.  For the Paid Charge Off which is reporting a balance, I would suggest disputing it on each credit report where a balance is showed so that they perform a verification and update to the correct $0 balance.  Having a Paid Charge Off on your credit is OK with FHA but not an Unpaid non-medical.

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I respectuflly disagree with the dispute.  I wouldn't dispute anything right now if you're going to be applying for a mortgage loan.  Most lenders will not process your application if there are any disputes on your CR.  Personally, I would speak with a lender, before applying, and they can give you a lot of the details.  It may just be that you're required to provide a Letter of Explanation explaining the derogatory.  In other instances, you might still receive conditional approval based on some actions that you need to take for the derogatory.

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Good point - it depends on the timing. I think best case scenario, they will need to show 3 months of payments to qualify for FHA so they would be waiting a while to apply since it seems like no payment arrangement exists yet. My situation was similar where I knew I would be applying for a mortgage in a few months and my mortgage broker advised me to dispute a couple inaccurate items on my report since there was plenty of time for the reinvestigation to conclude. The dispute comments are typically removed after completion of the investigation when/if the accounts are updated. Any dispute comments that remain can be removed via a phone call to the bureaus Dispute department. 

In my case it was far better to wait for the disputes to play out rather than try to apply early and have to explain everything when I'd have to wait either way.

Every situation is different though so I definitely agree on speaking to the loan officer prior to applying for anything

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True.  If individual is not going to be applying for a while, I'd definitely try and dispute and get any valid innacurracies removed.  It might even help bump the score up.  I think the best lenders are those that will sit down with you, in person or over the phone, and go into detail with what you need to do and what FHA requires.  It might even be helpful, to get a copy of your credit reports and take those with you to the lender so they can review without having to do a pull themselves.  Just my 2 cents.

[Anonymous]

I was recently approved for an FHA mortgage and closed on my home.  I can't comment on the charge off question, but I can say that my mortgage went into final approval once the score was above 620.  The banks have overlays even with the official FHA score being 580.  It was a long process.  Three weeks before the closing I had to fill out a credit review form and explain every late payment, charge off, etc.  My late payments were in 2013 and 2012.  It was nerve wracking.  I'm happy now to be a homeowner, but I was put through the ringer.  The interest rate was increased to me b/c of my score is less than 680.  So, just be careful, and if you can wait another few months to increase your score, then please consider it.  I'm now focused on doing everything correctly over the next 2 years so I can be a good position to refinance.  Good luck to you

[RobertEG]

Are you in the actual application process, or are you only in self-preparation?

FHA has specific guidelines for automated scoring, but having a collection paid within the last year will likely remove your from the automated process.

You will thus likely need guidance from an actual loan officer regarding their specific underwriting requriments.

It would likely need detailed advice from your specific prospective lendor, which may or may not provide them discretion beyond basis FHA requirments.

[AllCredit]

I had an unpaid CO on my credit when I applied for my FHA loan, Lender told me specifically not to touch it (no settlement, payment arrangements or anything).  I closed 3yrs ago and the CO finally dropped off in the last 60 days...unpaid.

[RobertEG]

There are threshold requirments set forth in current FHA regs, such as requirments to qualify for automated approvals, and then there are discretionary requirments that can be established by individual lendors, such as acceptance of scores below 620.

It is usually necessary to know the specific and discretionary underwriting requirements of your individual lendor for many of the "FHA requirements."