denied mortgage due to Paid In Full Charge Off?

[Logeese]

Was pre approved for a mortgage loan with a credit score of 625. We decided to go conventional as we have 20% down to avoid PMI on the FHA loan. I have some doctor bills that got put on our credit report (paid them before applying for loan) and a charge off that is paid in full. The charge off was on a equity line of credit. In 2009 we fell behind on our bills but now everything is good and i have not been late on anything in almost 2 years. The Mortgage broker told me this was not a problem in the beginning and to start looking for our dream home.  We found one and are under contract, did the home inspection which was $425 and now all of sudden the charge off is a problem. Mortgage broker is saying you cannot get a mortgage loan with a charge off on your credit report at all. Is this true? The charge off happened in 2010 and i paid it in full 03/2012. I really wish he woulld have told me this in the beginning we have wasted months looking at homes plus i have money into a home inspection, buyer made repairs for me that were found and i also have 1000 put down in good faith that i hope i do not lose.

He is currently trying to delete it from my credit report buy showing them my paid in full letter before submitting to underwriter but he says if they wont remove it will be denied and i cannot apply for a mortage till it falls off.  Is it normal to get approved and then denied when nothing changed on report?

[frugalQ]

I would run from that broker faster than Usain Bolt.

People are getting mortgages with prior foreclosures still reporting on their credit.....and that's the granddaddy of charge offs! I can understand if he had said that the charge off would have to age a bit longer, but to say you will be denied until it falls off is suspect...IMO.

Maybe this broker uses conservative lenders or something. You should apply with a different lender/broker.

[newhouse2013]

I have two paid charge offs on my report and have already been approved through UW. I would try someone else. 

[ShanetheMortgageMan]

The issue is that it was a HELOC that was charged-off.  If it was just a regular credit card then that isn't a dealkiller, but a charge-off on a HELOC is usually looked at as the same as a foreclosure, and if you are going with conventional financing most lenders will look at that as a foreclosure.  Best case is it'd be considered 120+ days late from the charge-off until you paid it, which was in in 3/12... or around 2 years of 120+ day mortgage lates.  For mortgage payment lates that severe you would probably need at least 2 years from when that occurred.  FHA may be more forgiving if the charge-off occurred over 3 years ago.

[Logeese]

so the two years start from 03/12?  Thanks!

[cocomadd]

If you really need the home go FHA they may have looser guildlines, you can still put the 20% down to help with payments.