Can You Qualify For Home Loan With Collection Accounts?
Qualifying Requirements For Home Loan With Collection Accounts:
FHA does not require outstanding collection accounts to be paid off as a condition of mortgage loan approval. A letter of explanation or supporting documentation is not required for collection accounts. Borrowers can qualify for home loan with collection accounts. However, many mortgage lenders have internal overlays when it comes to having open collection accounts. Many mortgage lenders will require a mortgage loan borrower to pay off all open collection accounts prior to closing or at closing as the condition of them getting a clear to close. Other mortgage lenders will probably require a detailed letter of explanation on each open collection account.
What Is Manual Underwriting?
Manual Underwrites: Collection accounts must be considered when underwriting a manual underwrite mortgage loan. The borrower must provide a letter of explanation and supporting documentation consistent with the explanation, for all collection accounts.
Do Not Pay Off Open Collection Accounts
Do not take matters in your own hands without talking to your mortgage loan originator and pay off an old collection account or enter into a payment plan. I am not recommending that you stiff a creditor you owe but paying off an old open collection account will plummet your credit scores by more than 80 plus points overnight. Do not pay off an old open collection account under any circumstances unless your mortgage loan originator instructs you to. One way you can pay off an old collection account with an outstanding balance is to negotiate with the collection agency or creditor where you negotiate a one lump sum payment in return for them removing the derogatory item from all three credit reporting agencies. This is the only way you should negotiate and not take anything less. In the event if the collection agency or creditor is willing to delete your negative derogatory credit item from the three credit reporting agencies, then go ahead and pay the negotiated settlement amount and make sure the correction is reported on the three credit reporting agencies.