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Charge off and morgage

Valued Member

Charge off and morgage

I have a charged off installment loan for 12682. My last payment was in 2016. The creditor is reporting monthly on my report "failed to pay". I want to buy a house in September. My credit score should be in the mid 600s. Would I disqualify with this unpaid chargeoff. Could I potentially enter into a payment plan with the creditor to better my chances of approval?
Message 1 of 5
4 REPLIES 4
Frequent Contributor

Re: Charge off and morgage

I wouldn't make any payment arrangement with the creditor yet. If you restart payment arrangements the date of debt starts over. Look at the rebuilding section for more advice on the charge off.

I would contact a mortgage banker and talk to them about your approval odds with the charge off but know that if they pull your credit report you'll lose any advantage you would have had trying to make a settlement with the charge off creditor.
Message 2 of 5
Regular Contributor

Re: Charge off and morgage

I had several charge offs that have been settled and paid over the past three months. However, on my credit report, it states my last negative activity on my report was 15 months ago, when these charge offs reached 90-120 days past due or were listed as charge offs. Paying them off as a settlement didn't reflect as a "negative activity" on my credit report. I spoke to a lender a month ago, she stated so long as the charge offs had a no balance due (settled for less of the original balance), these would not affect my mortgage qualifications. I inquired about a VA loan, in case anyone was wondering.

Message 3 of 5
New Visitor

Re: Charge off and morgage

You can actually are ok with an old chargeoff without paying it off if you count 5% of the balance as a monthly payment and include in in the DTI Ratio.   This would be FHA

 

For Example...  if you had a $12,000 old debt, you can count 5% or $600/mo against your debt to income ratio and could still qualify if you're still within your DTI requirements.

 

I would NOT wake up an old collection unless you are trying to do a Settlement.  If it's done reporting, this could re-report and hurt your scores.

 

 

 

 

 

Message 4 of 5
Community Leader
Valued Contributor

Re: Charge off and morgage


@jearnick123 wrote:
I have a charged off installment loan for 12682. My last payment was in 2016. The creditor is reporting monthly on my report "failed to pay". I want to buy a house in September. My credit score should be in the mid 600s. Would I disqualify with this unpaid chargeoff. Could I potentially enter into a payment plan with the creditor to better my chances of approval?

Hi Jearnick123,

 

The charge off itself is not a "problem" in terms of underwriting requirements for FHA & VA loans but it could be a problem for you down the road.

The biggest concern is that the original creditor could sell the account to a collection agency (CA). Once a CA picks up the account, they can report it to the credit bureaus & that's going to hurt your scores. The other concern is the CA could take you to court & get a judgment against you at which point they can attempt to garnish your wages.

If you can get the original creditor to settle the account you eliminate the possibility of the account being sold to CA.

I would first offer a small lump sum to settle the account & see what they say. If they won't bit then you can talk to them about setting up a payment plan but make sure you try to get them down on the total amount owed.

 

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
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