FHA loan qualifications on Charge Offs / Collections & time frame lenders are looking at

[Anonymous]

I have a charge off from early 2019 here are the specifics.

Indigo/CB Bank 30 day late - Jan 2019  Charged Off - May 2019 Total of $629 written off 

My question is im applying for an FHA/ CONV when i get my new taxes Febuary 2021 (2 years and one month after 30 day late from this account) will this charge off account disqualify me ? 

Assuming all other qualifications meet.

Fico 2, 4, 5 score average is 635

If this is a deal breaker how should I deal with it, wait till the account is two years old? Pay a credit repair company ? I would really like to get this done in the new year I have been working for over year on my credit. I applied earlier this year 2020 and was denied due to new industry Quicken loans, local lenders all viewed the credit report and gave pre approval but when underwriting got it they would come back with a very low number. 

Thanks ahead of time. 

[TattnallTrio]

I think you'll need at least 20% down, and likely a good Co-signer. Many underwriters will wonder if you couldn't manage a $300 credit card with a $40 payment then you likely won't be able to manage a mortgage. They'll ask for a few years of bank statements, and a one time tax return will be frowned upon opposed to a solid savings month after month. I know this isn't the answer you're looking for but the proof is in the pudding. 
Credit Repair companies are scams and charge for what you can do for free. 
What else is on your credit report? 

[Anonymous]

I have 2 credit cards all paid on time with low balances & a collection from 2016. 
I applied 6 months ago to quicken and local lenders and was pre approved but when underwriting came back from quicken they only approved me for half the amount due to change of industry 

[DebtStinks]

@Anonymous 

I would (more importantly any lender) need to know a few things:

How many accounts do you have? How many older than 2 years, 4 years, etc? Are they credit cards, installment loans like vehicle loan or student loan? Remaining balances on all of them individually and number of repayment months left if an installment loan?

Provable job time at your specific employer? Industry?

Income? Is it salary or hourly? What has it been on your taxes the last 2 tax years? (which would be 2020 and 2021 tax filings very soon)

Any money in retirement accounts?

Any money in checking/savings accounts?

Total monthly outgoing obligations (currently) minus any expenses for your current residence...(current rent, etc will only be looked at for verification and comparison to new mortgage payment making sure it's not too large of a jump...in which case an exception would need be made)

Current Mortgage scores? All three individually, not the average of all 3.

I know this is a lot, but based on your answers now, myself and others (mortgage professionals) can help you get best prepared for a mortgage application and have a REALLY good idea what an underwriting system and/or live underwriter would say when processing your application.

I hope this helps...tag me in a repsonse if you want me to get notification and respond in a more timely manner.

Best of luck!

[JVille]

As a long time UW (now retired) I can't get past that this is such a small amount that you didn't take care of. Have you contacted them for a PAY to Delete?

Second - Averaging Mortgage Scores won't work. Lowest middle score when looking at ALL borrowers. And your charge off is a big part of your low score.

Third - forget Conv it won't happen but after some cleaning up FHA "May" work depending on your Middle Mtg Score.

good luck and Merry Christmas!

[Anonymous]

So i spoke with my quicken loans LO from when i applied in June 2019, they werent concerned with the INDIGO account as it was on my credit report from when they first pulled, he said the reason we couldnt go forward was DTI was too high 2018 I barely accounted any income (full time student), but I would be in a much better place with my 2020 taxes. 

How many accounts do you have? How many older than 2 years, 4 years, etc?

I have 3 open accounts all 3 have perfect payment history

Capital one Secured CC  - 2 years on time payment no lates Balance - $80

Capital One Rewards CC - 19 months on time payments no late _ $90

Citibank CC (Authorized User) 30 years perfect payments $1000 balance

out of 12,000 limit.  

Capital One ( Closed 2018) Perfect payment

Regions Bank ( Closed 2013) Perfect

Negatives -

Macys (Closed Charge Off ) Balance : $742  (Sept 2015)

Discover ( Closed Charge Off) Balance $28 ( Aug 2015)

Indigo (Closed Charge off) Balance $0 ( Charge OFF may 2019) - long story short i had a best friend pass away in Dec 2018 depression etc 

Portfolio Recovery - Closed Collection Balance $1360 (2016)

Provable job time at your specific employer? Industry?

Photography and Marketing Schedule C - about same this year as last years income on taxes

Online Sales Seperate Schedule C - about 2x the amount from last year taxes

Income? Is it salary or hourly? What has it been on your taxes the last 2 tax years? (which would be 2020 and 2021 tax filings very soon)

Income 2019 Taxes ($25,650)      2020 Taxes ($60,000)

Any money in checking/savings accounts?

$40,000 in checking/savings

Total monthly outgoing obligations (currently) minus any expenses for your current residence...(current rent, etc will only be looked at for verification and comparison to new mortgage payment making sure it's not too large of a jump...in which case an exception would need be made)

$50 total monthly obligation 

Current Mortgage scores? All three individually, not the average of all 3.

Experian Fico 2 - 650

Transunion 5 - 625 ( Have not updated this month should be a little higer)

Equifax 4 - 648

@DebtStinks THANK YOU for helping i cant tell you how worrysome this whole process has been. 

[Anonymous]

Hello, 

Thank you for your reply, 

I know the small amount seemed trivial I had very close friend pass away and i was dealing with alot at the time.

I have been paying for the past 2 years since then all on time 

I posted below the total accounts i have etc

[DebtStinks]

With what you have in checking/savings and your current monthly obligations, I'd say:

1) Kick it into high gear on paying/settling your outstanding debts...preferably on a PFD basis.

2) Get a SSL loan with NFCU, PenFed, local credit union, etc so you have installment loan reporting for optimal credit mix. Most lenders will let you prepay your loan and, if so, prepay the loan to 8.9% or less. This accomplishes the "utilization" part of an installment loan to get into ideal remaining balance in addition to being able to exclude this debt when you close on a loan since it can/will be PIF at closing...again, the whole purpose of this is score optimization and you'll IDEALLY have this reporting on your credit 6 or more months before closing.

Other than that, just continue saving and making good money.

I'm no underwriter, but you're in pretty good shape with a few minor adjustments and payments to outstanding debts.

Best of luck!

[Anonymous]

Are current installments necessary? I had one in 2015 with perfect payments. A banker said they have a 6 month installment loan I was looking into, but how would this affect the fha loan if I apply 3 months after the I'll stalkers to started ? I would only be doing the installment loan to show better credit profile for the application. Is it even worth it ?