Can You Get Mortgage Approval With Outstanding Collection Accounts?
Mortgage Approval With Outstanding Collection Accounts
Many folks assume that just because they have had prior bad credit and collection accounts that they cannot get a mortgage. This is absolutely not the case. Everyone, at one time or another, had gone through periods of hard financial times and may have debts that are collection accounts. The good news is that you can still qualify for a residential mortgage loan with outstanding collection accounts as long as they are over one year old or older. The older the collection account is, the lesser of an impact it has on your credit scores. Collection accounts over two years old have little or no impact on one’s credit scores.
Older And Dormant Collections And Mortgage Approval With Outstanding Collection Accounts
If you have collection accounts from the past, DO NOT PAY them until you have consulted with a mortgage loan originator. Paying off old collection accounts will drop your credit scores because it reactivates your older derogatory credit item and renews it as a fresh derogatory. I have seen people’s credit scores drop by more than 80 points because they have paid off old collection accounts. Remember that you can get a mortgage loan approval with collection accounts that still have a credit balance and the mortgage lender does not require to pay off the old balance on your collection accounts.
Mortgage Approval With Outstanding Collection Accounts: Active Collection Accounts
When you ignore payment demands from the creditor, you account gets either transferred or sold to a third party collection agency. The creditor pretty much wrote you off and could have sold your bad debt to a third party collection agency for pennies on the dollar. In turn, the collection agency will try to collect the full dollar value of your debt plus interest.
How Mortgage Underwriters View Collection Accounts And Mortgage Approval With Outstanding Collection Accounts
Collection accounts are not view favorably by mortgage loan underwriters, however, underwriters do understand that people go through financial hardships due to unemployment, underemployment, medical problems, divorce, or business loss. Medical collection accounts are probably the least damaging collection accounts anyone can have. Most mortgage lenders dismiss medical collection accounts and some even do not even consider medical collections as derogatories. Mortgage loan underwriters do not require you to pay off old collection account but do want letters of explanations on why the borrower has had collection accounts and the circumstances surrounding it.
Collection Account: Impact On Credit Scores And Credit Reports
A recent collection account reported on your credit report will guarantee plummet your credit scores. However, as mentioned earlier, the older your collection accounts get, the less and less impact it has on your credit scores. Collection account will remain on your credit report for a period of seven years from the date of the last activity. Once the seven years is up, it will get deleted by your credit report.