Mortgage Approval With Outstanding Collection Accounts

Mortgage Approval With Outstanding Collection Accounts

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Mortgage Approval With Outstanding Collection Accounts Was UPDATED And PUBLISHED On March 5th, 2020

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

In this article, we will discuss and cover Mortgage Approval With Outstanding Collection Accounts.

Older And Dormant Collections And Mortgage Approval With Outstanding Collection Accounts

Can You Get Mortgage Approval With Outstanding Collection Accounts?

Borrowers who have collection accounts from the past, DO NOT PAY them until they have consulted with an experienced mortgage loan originator.

  • Paying off old collection accounts will drop consumer credit scores
  • This is because it reactivates 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 borrowers get mortgage approval with collection accounts with an outstanding credit balance

Gustan Cho Associates does not require to pay off the old balance on collection accounts.

Mortgage Approval With Outstanding Collection Accounts With Active Collection Accounts

When you ignore payment demands from the creditor, your account gets either transferred or sold to a third party collection agency.

  • The creditor pretty much wrote consumers off and could have sold the 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 debt plus interest

How Mortgage Underwriters View Collection Accounts

How Mortgage Underwriters View Collection Accounts

Collection accounts are not viewed 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 lenders dismiss medical collection accounts
  • Some even do not even consider medical collections as derogatory items
  • Mortgage underwriters do not require borrowers to pay off an old collection account

But do require letters of explanation on why the borrower has had collection accounts and the circumstances surrounding it.

Collection Accounts And Impact On Credit Scores

A recent collection account reported on the credit report will guarantee to plummet credit scores.

  • However, as mentioned earlier, the older collection accounts get, the less and less impact it has on credit scores
  • Collection account will remain on credit report for a period of seven years from the date of the last activity

Once the seven years are up, it will get deleted from the credit report.

Qualifying For Mortgage With Outstanding Collections And Charge Offs

How to qualify for a mortgage with overdue collections and write-offs

Many borrowers of ours come to us because they could not qualify for a mortgage by other lenders. This is mainly because of their overlays on collections and charge-off accounts. Gustan Cho Associates is a lender with no overlays on government and conventional loans. We have zero overlays on collections and charge off accounts. Borrowers do not have to pay outstanding collections and charge off accounts to qualify for government and conventional loans. Borrowers who need to qualify with a direct lender with no overlays on collection accounts, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at We are always available 7 days a week.

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