Can I get a conventional loan with unpaid collections?

[Anonymous]

I'm preparing to apply for a conventional mortgage but not sure if having collections will be a problem. I have heard that lenders will require them to be paid first, but I've also heard that lenders will just count 5% of the balance towards DTI. Can someone who knows for sure please let me know what to expect

Mortgage Scores: 734, 728, 741

Income: $105k

Purchase price: <$375k

DTI: 4.8%
Down payment: 5%
Reserves: 4 months 

Collection#1: $5173 pasted the SOL falls off reports on 8/2021

Collection#2: $2989 Pasted the SOL falls off reports on 9/2021

[SusieQ954]

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@Anonymous wrote:

I'm preparing to apply for a conventional mortgage but not sure if having collections will be a problem. I have heard that lenders will require them to be paid first, but I've also heard that lenders will just count 5% of the balance towards DTI. Can someone who knows for sure please let me know what to expect

Mortgage Scores: 734, 728, 741

Income: $105k

Purchase price: <$375k

DTI: 4.8%
Down payment: 5%
Reserves: 4 months 

Collection#1: $5173 pasted the SOL falls off reports on 8/2021

Collection#2: $2989 Pasted the SOL falls off reports on 9/2021

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It's my understanding that:

• Under Fannie Mae Guidelines, credit accounts that are reported past due on a consumer’s credit report which are not reported as collection accounts must be brought current
• It needs to be up to date in order for the borrower to qualify for a conventional loan
• If a borrower is qualifying for a one-unit owner-occupant principal residential property, the borrower is not required to pay off any unpaid outstanding collection accounts and/or non-mortgage charge off accounts
• This holds true regardless of the collection account balance

The 5% number relates to FHA loans only.

[VALoanMaster]

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@Anonymous wrote:

I'm preparing to apply for a conventional mortgage but not sure if having collections will be a problem. I have heard that lenders will require them to be paid first, but I've also heard that lenders will just count 5% of the balance towards DTI. Can someone who knows for sure please let me know what to expect

Mortgage Scores: 734, 728, 741

Income: $105k

Purchase price: <$375k

DTI: 4.8%
Down payment: 5%
Reserves: 4 months 

Collection#1: $5173 pasted the SOL falls off reports on 8/2021

Collection#2: $2989 Pasted the SOL falls off reports on 9/2021

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Hi @Anonymous,

It all depends on what the Automated Underwriting System (AUS) findings tell us.