Timeshare reporting and automatic underwriting question

[ruckussjr]

I'll try to keep this short. I'm looking to build a house over course of next 9 ish months. I've contacted some local builders and spoken with 2 of their preferred lenders for "pre-approval" for earnest money to reserve and start build. 

1 has said come back in Oct (more on that soon). The other say no problem you won't close till next year anyway your gonna be in great shape then. 

the issue with 1 is, I failed to pay my time share "mortgage" for about 6 months. It was unavoidable and a pay for a vacation week u never use or feed your child situation. So I didn't pay it. I stayed current with everything else. 

but bc they "almost" foreclosed my timeshare they decided to after 9.5 years of paying it finally report it to 2 of three bureaus as a Mortgage/ with more than 120 day late. 

it's current now caught up and will be paid off in august. 

12 months from last late in sept 2023. 

loan co 1 says can't get AUS for u come back in Oct when it's seasoned. 

loan co 2 says no problem this will be fine by the time it actually matters all other items check out. BUT...., we have to have it reporting correctly as installment loan not mortgage. 

I'll be using FHA for my loan. I understand that no matter what credit report says FHA considers it installment. 

but it is Technically speaking a mortgage. The credit bureau isn't gonna change it bc it is technically correct on the report. 

or will they?? Anyone ever had this happen or know if auto underwriting will continue to be denied if not listed as installment on the credit reports?  

am I even posting this in the right section.. thoughts comments, direction appreciated. Thanks. 

also failed at the keep it short part thanks for reading to the bottom. 

[ShanetheMortgageMan]

The second lender is mistaken, it doesn't neet to report as an installment for underwriting to consider it as an installment debt.  Just document that it was for a timeshare and underwriting should accept that.  However, that still leaves the issue of getting an automated underwriting approval.  If you are unable to get one, then to be approved via manual underwriting for FHA you can't have more than two 30-day lates on installment debt in the past 24 months (and none in the last 12);  it seems that you have 6 of them with the most recent in 9/2023 which means 7/2025 is when you'd have no more than 2 in the past 24 months.

I suspect automated underwriting is picking up the account as a mortgage foreclosure and if so, then that'd be the reason you aren't getting an "Approve" from automated underwriting.  But has your loan officer tried to fiddle around with automated underwriting to see if there is a certain down payment %/DTI/reserve combination that would result in an Approve?  To confirm it's the delinquencies on the mortgage tradeline causing the issue they should just load your file up with assets, puting 50% down and making your DTI super low.

Has your loan officer tried qualifying you for Fannie Mae conventional financing?  Fannie Mae treats timeshares as installment debt too, even if it's reporting as a mortgage.  Unlike with FHA financing, the loan officer can override an incorrectly reporting mortgage foreclosure so it's ignored by automated underwriting.

[ruckussjr]

I am not sure as to any of the questions. But I will definitely be following up with at least the 2nd lender. I am not leaning towards buyer 1 at all, but wanted an alternative option given price. I will follow up with her for the Fannie Mae possibility. And ask about messing with the different senanarios for the automatic underwriting. 

The late payments happened in 2021 and 2022 so that would mean worst case 2024 correct for 24 months since last. I will be current with the offending installment loan for 12 consecutive months in September. 

I assume this will be a headache for me until the I sign on the dotted line at the closing table. 

[ShanetheMortgageMan]

Sorry I misread your first explanation with the lates, not sure where my brain was, so if 9/2023 is 12 months after the last installment late payment then you'd just need to wait until 7/2024 to not have more than 2 in the last 24 months at the time.

[ruckussjr]

Thanks for the info. Researching the Fannie Mae program. I didn't think I'd qualify due to income limits but seems they have a product that income doesn't prevent me from. 

thanks for the suggestion I'll def be considering that option when we are getting things in order. 

[ShanetheMortgageMan]

You're welcome.  The only Fannie Mae program that has income limits is HomeReady, their regular program (which is much more commonly used) does not.