I have Collections, Charge-Offs, Judgments, Garnishments and Liens on my Credit Report
What do lenders require?
St Paul, MN: Many potential home owners don't have perfect credit. A recent survey indicates that about 1/3rd of people have credit scores BELOW 630. That score is low enough to automatically disqualify them from most home mortgage loan programs in today's market. If you do have credit challenges, it is good to know how lenders will treat these issues.
While home loan programs vary, as a general rule, here are some important guidelines to follow for conventional loans:
- Delinquent credit must be paid off at or prior to closing. This includes taxes, judgments, collections, charged-off accounts, tax liens, mechanics’ liens, and liens that have the potential to affect the lenders lien position or diminish the borrower’s equity position.
- Documentation and proof of the satisfaction of these liabilities, along with proof you had the money to satisfy these obligations, is required.
- Small collection accounts (including medical collections) and charged-off accounts usually do not have to be paid off at or prior to closing if the total balance of all accounts combined is $1,000 or less.
- Collection accounts or charge-off accounts that exceed $1,000 (by itself or the combination of all collections and charge-off accounts) usually MUST BE PAID at or before closing (see #2)
- Collection accounts or charged-off accounts that exceed the above $1,000 limit in combined balances do not have to be paid off at or prior to closing, provided all of the following are documented:
- A very strong over credit profile otherwise (this allows for the one "oops" issue a customer might have).
- Meaningful financial reserves.
- Evidence that the accounts pose no threat to the new loan
Mortgages Unlimited is a Full Eagle FHA Lender. We lend in MN, WI only
(C) Copyright 2010 - Joe Metzler. Re-Blog but don't steal.