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Questions about USDA/FHA loans

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Questions about USDA/FHA loans

Hello! Im new here, working on getting credit scores up to qualify for USDA/FHA loans, i have a couple questions im hoping someone can help me with... i have no collections, all my accounts are back in good standing(with thru a rough patch was 120 days behind on a CC). So my question is, my wife has 2 medical collections, totaling $558 and an older CC charge off. The rest of her accounts are good standing. What are the chances of getting approved? Would we need to pay these off first? And can anyone give me some more information on Pay To Deletes? How does that work? Thank you in Advance! We live in WA state.
9 REPLIES 9
Regular Contributor

Re: Questions about USDA/FHA loans

Hello,

   The medical collection shouldn't be an issue for FHA or USDA loan. However, medical collections are generally the easiest to get removed. The CC charge off can be an issue for a couple of reasons. The balance is likely reflecting an over 100% utilization which means it's hurting the mortgage scores significantly. This can in turn affect the rates your offered and can affect your DTI ratios. I would take care of the CC charge off first as it has the most impact on your overal profile. How long ago was the CC charge off and the CC lates? These both must be at least 12 months ago as approval with anything more recent is rare.  

 

There are a lot of posts in the credit building forum about pay for delete. In the simpliest form you call up the debt collector or whoever is now reporting the debt, negotiate a sum of money you will pay to settle (or pay in full). You will then ask them to remove from your credit report in exchange for payment. If they agree, get this in writing before making the payment. Keep in mind some CC companies will refuse to do this, I had this issue with Merrick Bank and First Premier Bank.

 

Good Luck

Message 2 of 10

Re: Questions about USDA/FHA loans

Thanks for the reply! The Charge off was back in 2016 and the late payment for her current card was last month Smiley Sad She is now current on credit card with no balance. I’m thinking we will settle on the Medical bills and the charge off is less than $400.
Message 3 of 10

Re: Questions about USDA/FHA loans

Just our luck, the charge off is with First Premier Bank. We will try to be successful in getting a pay for delete. Thank again for your help
Message 4 of 10
Valued Contributor

Re: Questions about USDA/FHA loans

You WILL need a full 12 Months of clean credit given the circumstances you describe. This gives you plenty of time to clean things up.
Message 5 of 10

Re: Questions about USDA/FHA loans

Thank you! I talked to a lender in February of this year & he said to give it some time to heal but didnt say a whole year would be needed.
Message 6 of 10
Regular Contributor

Re: Questions about USDA/FHA loans

In February you didn't have a recent late CC payment. If you were 120 days late last month, that means you started being late 3 months ago. If you lookup FHA/USDA guidelines you will see it is pretty clear in no late payments in the last 12 months. 

Message 7 of 10
Highlighted
Regular Contributor

Re: Questions about USDA/FHA loans

USDA can be a little more strict... But when it comes to FHA, when you look up the information online, it may tell you you cannot have any late payments in past 12 months and will also tell you that the max debt ratio is 31/43 which caps you at a 43% debt ratio... But, that is for most (not all) lenders MANUAL underwriting guidelines. 

 

When working with a lender (who has no overlays) if you  receive an AUTOMATED approve eligible, this will over ride those manual guidelines.... I personally close FHA loans with multiple lates within past 12 months and the max allowable debt ratio is 56.99%. instead of 43%... This is just 2 example of many. Lots of people (including loan officers) do not know this information but we have been reviving and closing these loans after  buyers have been turned down by multiple lenders. Plus, there are no hits or increases to the interest rate. It is all credit score driven. 

Message 8 of 10

Re: Questions about USDA/FHA loans

Yes that is correct. She has been late last 4 months just paid it down today. Smiley Happy
Message 9 of 10

Re: Questions about USDA/FHA loans

@mortgage specialist thanks for the insight! Currently working on raising score and making sure no late payments!
Message 10 of 10
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