UPDATE Closed!!!! USDA Loan approval with collections?

[Anonymous]

Hello all!

So i have been here only a couple of weeks but there has been such great advice and stories that it made me want to reach out and get the communities advice.

My situation.

My mid score is 617 and my wifes mid score is 631. We are interested in a $175,000 home and with said home we would be at %44 dti utilization.

Major credit concerns, a repo from 2 years ago with $7,000 unpaid. Various other paid and unpaid collections mostly medical that vary between 2-6 years old.

I currently have a home and 2 cars, never missed any payments. One credit card witrh 8% balance and one store card with 75% balance which i plan on paying next month down to 8%. No late paymetns, collections or any negative in the last 2 years other than the old debt that gets updated every few months but still show last date of 2 years back at least.

My situation, this was our first home, we purchased it 9 years ago. Had one baby at the time, now we have a toddler and a teen and i need an office to work out of when i have to work from home. BAsically we outgrew our little home. Another reason we need a new home is due to our work location. We both found great new jobs 30 minutes a way, we work next door to each other but yet we live on the other side of town. It is becoming costly and very inconvieniant.

We found the home we liked and applied for pre-approval with their lender, their lender is basically saying to sell my house then contract a new build with the builder. By then my credit will be there. So i put my house on the market yestruday, now i'm freaking out!!!!

Somoene showed up hours after it hit the market for a shwoing, they love my little home and were saying they would make an offer this week! What!!!!  This week!

I am now in a situation where i may have roughly $10,000, no home and my family would have to stay with my dad a few months.

Now the questions. With a $7,000 repo and a couple thousand other collections a couple years old or older. Will this prevent us from buying our new home down the line? I do think my credit will be there, i disputed several items last week that was either very old or duplicate and plus i plan on paying down the store card which should help. I would hate to waste the money i made on the sale of my current home paying off those other debts only to have my credti score drop again!!!!!!. I feel that if i don't sell the house now before the summer i could miss out on the price i want or lose these nice rates on the buying side?

And with the builders lender being soo optimistic about me being approved should i be worried or concenred? Is she just blowing smoke to get me to sell my home on a simple hunch or shoudl i belive her that the collections aren't gonna come up and slap our dreams down?  

Any info, input, insults would be appriciated as my stress level have hit an all time high in my life right now.

 Thanks in advance everyone!

[Familywantsahouse]

I've been in contact with the USDA in two different states. Collection accounts are a dealbreaker for this loan under a 640. Their max DTI is 41% as well...

[Anonymous]

I'm sorry, i should have clarified.

So the hopes is that a few disputes and paying off my store card will get  both our scores to 640 or above while lowering our dti to the 41% area.

I do not mind staying with my father a a few months aftr the sale of our home and even using that extra money we will have to pay down anything that needs to be paid down to get our scores to 604 or dti to 41%.

My concern is if we hit 640 and 41% dti, will the collections and charge offs destroy any chance at getting the deal done? With most emphasis o the $7000 repo from around two and half years ago.

And thanks for your repsonce!

[Anonymous]

My LO told me not to worry about the collections accounts because my mid range was over 660.  He claimed that the lenders would ignore the collections since my FICO was so high.

Once my Loan went into underwriting, the underwriter requested a letter of explanation for the collections account.  I wrote it, they accepted it, and I closed on my house last Friday.

If you have a good LO, just let them do there job.  If you suspect yours isnt good, find one that is.  I am in MA and my LO was absolutely amazing every step of the way.

[Anonymous]

Oh and my DTI was 48% but my front end was 23% so that was not a problem either.

[Anonymous]

Thanks for the input!!!

So that sounds pretty much in line with what my lender was telling me. Once my score hits 640 the colelctions will not matter even the $7000 repo.

It is not that she is a bad lender, she is very enthuisiastic and she has answered alot of questions and given me alot of time. I just thought it was interseting the way she very easily told me not to worry about the collections. In my experience, when it comers to business if anyone makes a serious thing sound like nothing then they are most likely wanting you to put your guard down.

I guess i should go through with my home sale and just continue working on reaching 640, i guess that is the most important piece of the puzzle.

Congrats on your closing btw!!!

[Anonymous]

I wouldn't 100% trust that those collections won't matter.

They may require some or all be paid prior to closing.

[Anonymous]

Hmm, well that was one of my questions to the lender. Will i be required to pay off the colelctions, and she said since they are over 2 years old and if the score is 640 they don't have to be paid? Does anyone have experience with large collections on a usda loan that was a few years old?

[Familywantsahouse]

Especially after July, with the FHA requiring all collections totaling over 1k to be paid, wouldn't surprise me if the USDA adopted that guideline as well since they seem to have similar requirements...

[Anonymous]

Honestly I think it may be a hurdle.

It's not just an unpaid collection, its a repo, plus its two years ago which isn't all that long ago. I think this might be totally at the discretion of the underwriter.