Best option to qualify?

[jaicam5]

DH has a three year old debt with Navy Federal which is the only negative account on his report. We want to qualify for a home asap. Score is low because of debt and a dismissed BK from last year. We are self employed and don't have an issue providing returns, etc.

Question is that we just received a letter from Navy Federal to settle the debt for ALOT less than the balance. Should we settle the debt or pay in full to possibly qualify for a Mortgage? His current DTI is 23% with this debt. He has since reestablished credit and old accounts deleted since the BK dismissal. We had one lender pull but she wasn't giving us a direct answer and seems unsure herself.

[Anonymous]

I can't say I am an expert but of course you will want to resolve the issue with NFCU before you attempt to qualify, I doubt that paying a settlement amount will be seen more negatively than paying in full.  It reports to the agencies as settled for less than the full amount but it resolves the collection which from my experience seems to be the biggest concern of underwriters.  I am sure there are brokers here than can provide a stronger answer but I would pay the settlement amount offered by NFCU and put this in my rear view.

[kc0039]

In my experience with this, if you can settle on the debt, settle on the debt. If you say you paid the debt with the company and we see it showing on the credit report, we will pull a credit supplement to show that the account has been paid and they are not going to be collecting from you anymore. It also depends on the loan program you are using. FHA will make you pay the collection account off prior to closing if you reach over a certain amount. It also depends on how much house you want to buy for you to qualify.

[jaicam5]

Thanks. That was our main concern. We didn't know if one would look worse than the other.

[jaicam5]

Luckily its not listing as collection on the report yet and we want to pay it before it does. Yes it will be FHA. We are looking to qualify for at least 300k. I don't want to go higher than that even though the FHA limits are higher in this area. 

[kc0039]

We will ask to show how you paid the debt off which means you have to provide the bank statements where the money came from