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.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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