Charge Offs and Mortgage Qualifications

[Anonymous]

I have searched and read conflicting information.

Besides your actual credit score, how did having charge offs (paid, paid in part, or unpaid) affected your ability to qualify for a conventional mortgage?

How soon after charge offs were you able to qualify?

Middle score is 620. Charge offs are recent and currently unpaid (considering settlement options currently).

[Mortgage-Specialist]

I'd run that through a credit simulator. Settlements are not likely at all to help your scores. Paying it off isn't likely to increase your scores in the short term but long term it would help. If you can PFD, that would be the way to go for immediate score boost especially with recent collections/charge offs. I'd still run a simulator to verify so you don't waste your funds paying something off that won't help you

[Anonymous]

Thanks but that's not really what I'm asking about. I'm not asking whether to pay or not pay or how that might affect my score. I'm asking about peoples' experiences with mortgage approval after charge off. 

[Mortgage-Specialist]

You're not required to pay them off. The credit simulator is there to determine whether or not you'll get a score boost or not. 

[CreditFun]

Their exsistence may prevent you from getting approved, regardless of whether you pay them off or leave balance.  Approval is a risk based mixture of your total profile, including income, assets, debt, property type, ltv, occupancy type, etc.

If you are planning to put down less than 20%, you may have to pay a huge monthly MI bill, which is when a government backed loan could make more sense.

Each persons situation is different.  

Best to call a local mortgage broker for specific advice.

[VALoanMaster]

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@Anonymous wrote:

I have searched and read conflicting information.

Besides your actual credit score, how did having charge offs (paid, paid in part, or unpaid) affected your ability to qualify for a conventional mortgage?

How soon after charge offs were you able to qualify?

Middle score is 620. Charge offs are recent and currently unpaid (considering settlement options currently).

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The charge offs, by themselves, probably won't be an issue as far as underwriting goes but getting a conventional approved with a 620 score is going to be difficult. 

In my experience, settling or paying off the charged off accounts has generally improved the credit scores of my clients. It doesn't matter if they're paid in full or settled for less than owed.

How much money are you planning to put down?

[Mortgage-Specialist]

Based on running credit simulators hundreds and hundreds of times, paying off old charge offs do nothing to better the score 95% of the time

[VALoanMaster]

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@Mortgage-Specialist wrote:

Based on running credit simulators hundreds and hundreds of times, paying off old charge offs do nothing to better the score 95% of the time

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That's weird, it's the exact opposite for me.

[Anonymous]

VALoanmaster thanks! So I did prequalify with my credit rating and with the charge offs. I do still worry about the something cropping up during underwriting. Any experience or words of advice?

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@VALoanMaster wrote:

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@Anonymous wrote:

I have searched and read conflicting information.

Besides your actual credit score, how did having charge offs (paid, paid in part, or unpaid) affected your ability to qualify for a conventional mortgage?

How soon after charge offs were you able to qualify?

Middle score is 620. Charge offs are recent and currently unpaid (considering settlement options currently).

---

The charge offs, by themselves, probably won't be an issue as far as underwriting goes but getting a conventional approved with a 620 score is going to be difficult. 

In my experience, settling or paying off the charged off accounts has generally improved the credit scores of my clients. It doesn't matter if they're paid in full or settled for less than owed.

How much money are you planning to put down?

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[mgs2010]

I am a loan officer and I approved a client of mine for a refinance with a citicards charge off for over 20k that happened 4 months prior to the application. So long as it is your primary residence, in most cases a charge off doesn't matter and is completely ignored. 

I've also approved clients with charge off private student loan debt to the tune of over 100k. I've seen a lot of seemingly BAD situations result in approval. So long as your DTI is in line with guidelines, your credit score qualifies, etc. you're generally safe. 

Best of luck.