Can I Have Outstanding Collections In Mortgage Approval Process?

Outstanding Collections In Mortgage Approval Process is allowed. You can have open collections and still qualify for a residential mortgage loan without having to pay off the open collections.  If you have open collections that have been aged, do not pay them off thinking it will improve your credit scores.  It is quite the opposite.  Open collections that are older than 2 years old on your credit report normally has no impact on your credit scores.  However, if you make a partial payment or pay the open collections off, it will renew your derogatory information as a current derogatory and it will drop your credit scores.

Paying Off Open Collections: Right Way To Do It

If you really need to pay off outstanding collections in mortgage approval process or the mortgage lender that you are currently dealing with is requiring you to pay off open collections, realize that it will definitely drop your credit scores. I have seen credit scores drop 40 or more points when people paid off open collections.  If you are satisfying a old unpaid collection account, contact the creditor and see if you can do a pay for delete where the collection agency or creditor is willing to delete the derogatory item off your credit report if you pay off the open collections.  Many collection agencies and creditors will do this while others will not.  You are basically telling the creditor or collection agency that they will get their money if and only if they will remove your derogatory off your credit report.

Mortgage Lender Overlays On Outstanding Collections In Mortgage Approval Process

Mortgage lenders who have mortgage lender overlays might require you to pay off open collections.  Paying off open collections is not a FHA or Fannie Mae overlay but certain mortgage lenders do want to see open collections paid off.  The reason for this is because open collections can possibly turn into future judgments and mortgage lenders really frown on judgments.  If you have a mortgage lender requiring you to pay off open collections, you can shop your mortgage application to other mortgage lenders that do not have mortgage lender overlays.  If you are looking for a mortgage lender with no mortgage lender overlays in please contact me at 262-716-8151 or at www.gustancho.com .  I represent investors who do not have mortgage lender overlays and the only thing they go by is an approve eligible per automated underwriting system.  Your automated approval is your final approval.

FHA Loans And Outstanding Collections In Mortgage Approval Process

Some mortgage lenders will require that 5% of the balance on open collections be counted towards counting debt to income ratios if your aggregate total open collections balance is greater than $2,000.  For example, if you have open collections with total unpaid balance of $4,000, 5% of the $4,000 open debt balance or $200, will be counted as a monthly expense towards your debt to income ratios qualification.

By Gustan Cho

www.gustancho.com

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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