Paying off non-medical collection for FHA loan? Is this required?

[Down_2Bizness]

I applied for a loan with a local corresponding lender, and they are telling me that I have to pay off my remaining non-medical collection. I have $500 owed to a bank, which is from my employee checking account that became overdrawn in 2007. This file was placed with a collection agency, and the date opened on my report shows 5/2010. I thought that for FHA loans, if the balance is under $1000, you didn't need to pay off the collection. Is this a different situation because it is owed to a bank? Or does it have to do with the date on the report?

[n0smirc]

It's likely the overlays of your lender. 

[Peter1142]

Likely this, or it could also be that you are getting manual underwriting.

[BrianB_The_Loan_Professor]

Banks all have their own rules about collections - How is the rest of your file are there other issues that an underwriter would have issue with?

I ask because sometimes if it is a marginal loan it may impact what an underwriter wants to see paid off - 

as far as overlays on collections it varies quite a bit - some banks require that all collections be paid off - 

As an example of overlays - our bank requires that anything over 2k must be paid (non medical) if it is below that we can overlook it

Where as Tom B on here has no overlay at his bank and unless it is a HUGE number he seems to be able to get them through - 

I guess that it is their threshold for their investors - the chances are a collection agency is not going to pursue a judgment (which could become a lien on the property) for the smaller amounts so they arent as big of a deal - 

You can either pay this and continue along or look for another bank that wont make you pay it - 

Good Luck

Brian

[Down_2Bizness]

I have 16 accounts between my 3 reports, 5 of which are open (1: 10/1000, 2: 0/450, 3: 174/500, 4: 0/1000, 5: 1700/2500)

Oldest account was opened 10/99 and oldest open account was opened 6/05; on this account I have had 6 late payments, but most recent was 7/12.

I have one charge-off with a zero balance, 4 collections, two of which have zero balances, the third is a medical collection and the other is the account in question.

No open installment or mortgage accounts, but I did have two auto installments in the past, with perfect history.

Scores are 661, 669 and 691.

[n0smirc]

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@mysnii wrote:

I have 16 accounts between my 3 reports, 5 of which are open (1: 10/1000, 2: 0/450, 3: 174/500, 4: 0/1000, 5: 1700/2500)

Oldest account was opened 10/99 and oldest open account was opened 6/05; on this account I have had 6 late payments, but most recent was 7/12.

I have one charge-off with a zero balance, 4 collections, two of which have zero balances, the third is a medical collection and the other is the account in question.

No open installment or mortgage accounts, but I did have two auto installments in the past, with perfect history.

Scores are 661, 669 and 691.

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If they want you pay it, try for a PFD. I was able to get deletions on my collections fairly easily, except one old one. YMMV but, I have one company that wouldn't budge on their reporting (medical too - HIPPA didn't work) and paying it didn't lower my score at all. I just wanted to have all my obligations and delinquent past debts paid. 

I've seen recently paid charge-offs cause scores to plummet if they hadn't recently reported but so far, PIF on collections just closes the account and ends obligations. Just ensure you have everything in writing and confirm payment is received if you decide to go ahead and pay and aren't able to get a PFD. 

[ladybug982002]

When I applied for a mortgage back in late sept/early oct, I had one account in collections.  It was a medical one and it was in collections for about $460.  The lender did not make me pay it off.  The agent told me that it could be possible that the underwriter could come back and ask me to pay it off but he didnt think that would it happen since it was under $1000.  He said it could be possible that the underwriter could account for the collections as part of my monthly DTI. Nothing regarding my collection came back during underwriting though so Im not sure how lenders account for it, if they do at all but I closed in Nov.  But even if they had calcuated  that collection as part of my DTI I would still have been within the limits.

[Down_2Bizness]

Thanks all for your feedback. I did ask the loan officer about this, and she said she will send it to UW without it being paid and see what they say. I will pay it if need be, but would love to have that extra money in the bank for all of these closing expenses.

I did contact the CA, and they will PFD, so that is good in case I do have to pay it off, just trying to buy some time.

[n0smirc]

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@Down_2Bizness wrote:

Thanks all for your feedback. I did ask the loan officer about this, and she said she will send it to UW without it being paid and see what they say. I will pay it if need be, but would love to have that extra money in the bank for all of these closing expenses.

I did contact the CA, and they will PFD, so that is good in case I do have to pay it off, just trying to buy some time.

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Even if they don't require payment for the loan I would go ahead and pay it as soon as the loan is clear and you have the funds. They've put a good offer on the table and clearing a debt that you owe + deleting it from your reports is a win-win. Besides, now that they've called you and talked about making a payment, they're getting the idea that you are looking to have something done with that account. 

[Down_2Bizness]

Yes I definitely plan to pay it. Timing was just wrong. Thanks to this forum I have cleaned up my report a great deal and plan to keep it that way. This collection and the lates (which I have been GW) are part of the last few baddies on my report.