Fha

Hi,

I have been reading this board for a about a month now and this is my first post. Everyone here seems to be very nice and helpfull!!

My husband and I are planning to apply for a FHA loan at the beginning of 2003 and I was wondering about a few things.

We have had credit problems in the past, my husband has been rebuilding his credit for the past few years and has no lates for the past 4 at last check his credit score was 640 and mine was 590(ugh). He has one unpaid charge off's and a a paid civil judgement that was issued at the end of 2001 and paid in the same month. We only have two credit cards both with low limits and we pay the balance in full each month. so our dept to income raito is low. So what I was wondering is should we pay off the charged off account before we apply. The account is due to fall off 11/2003 and we had read somewhere that paying it off was silly where it was so old and the company had taken a loss on it. Any help (advise) would be great.

PS: once again you all seem great and konw your stuff.

Take care,

Kim

Applying for a mortgage is one of the very few reasons to pay off a charged-off account, especially because its so old.

You have 2 choices; either wait until after the charge-off comes off your report, or if you have the money now, pay it.

Chances are FHA will require you to do so.


How much is the charge-off for? Is it worth paying that amount of money versus waiting another year?

Trixie,

As the resident expert FHA, she should not pay off the charge off. Paying it off WILL have a NEGATIVE effect on their credit score.

FHA does not require that charge offs and collectiosn be paid off. This is usually the call of the underwriting based on the rest of the credit profile. General rule is that if it is over 2 years it probably does not have to be paid.

Furthermore, if it is going to be require to be paid, wait until the U/W requests it and do it through the closing.

Kimr,

Based on what you posted you should be fine. Only thing you will most likely have to do is write and explanation for the prior derog's. Any specific questions please feel free to contract me or I have post the credit guidelines here somewher in the past --- Christine can probably direct to old post better than me.

To give others hope, i will be posting a scenario of a FHA loan that was just approved today for a purchase to give you all an idea of what can be done. You will be amazed.

I just wanted to say thanks for giving me some direction on what to do. I will wait until someone tells me to pay it.

Thank You so much

Kim:D

DSemler thank you for the clarification, the last thing I want to do is give mis-information.

I made the error of thinking that VA and FHA follow the same guidelines.

Trixie,

Actually VA and FHA follow very similar guidelines. A chanrge off over two years old ona Va loan woudl probably not have to be paid either.

Lot of this is subjective and depending on the Underwriter they could want it paid off.

Here's the scenario:

Borrower purchasing and $82,000 house. Has no money downpayment. Downpayment coming from and DAP like Ameridream www.ameridream.org or Partners in Charity www.partnersincharity.org.

Current monthly Rent = $850

Time in current rental = 2 yrs

Time on Job == Borrower 12 yrs, Co- Cobor 1.5 yrs, prior job 6 months.

Credit scores: Borrower 637, 612, 544 CoB 585,585, 586
Ch 7 Bk discharged 4/97,
Judgement 12/97 paid 4/2000
medical collection 5/01
medical collection 5/01
medical collection 3/00
medical collection 5/00
cable collection 5/00
gas bill collection 6/00
phone bill collection 6/98, sold repeated 5/01, resold repeated 7/02
medical collection 2/02
Account reporting charge off 8/02 -- however acct was in BK

All the collections still have open and outstanding balances.

Borrowers Debt Ratio 16/37 meaning 16% of their income will be need to make the house payment and 37% will be need to make the house payment plus their other bills.

Borrowers new payment including taxes, insurance and Mortgage insurance $660.

This loan was approved and will close shortly. The borrowers are getting into a house with about $500 -$600 into the transaction to cover th ecost of their appraisal and homeowners insurance.

3 other lenders turned this deal down and told them to come back when the paid off all the collections. This loan requires that they pay the delinquent cable bill of about $75.

So as you can see there is a lot of flexibility with regards to FHA guidelines. Those out looking, seek out someone that knows what their doing and will ask you alot of questions about your situation and don't be put off just because on lender says no.

Regards,

Don

My husband and I will be applying for a VA loan, once we get through our FDCPA/FCRA Federal Lawsuit is resolved, because it includes a $16,000 collection account from a "damage claim" from our former landlord, which is insane.

We have consulted a mortgage broker who has informed us that the VA will not accept an application with any open Judgments, Liens, collections or charge-offs.

Would you suggest going to another broker?

Trixie,

Not Necessarily. $16,000 seem high for just a collection. This sounds more like a judgement. If it is a judgement, VA will not insure the loan unless it is paid.

If it is a collection then it depends on how old it is. One other thing that will be considered is the fact that it was a prior landlord. Thus a housing expense. This will be of higher concern since it was housing related vs a consumer account.

If this is the only negative items on your credit and you hae a good explanation then your chances are better. If your credit report shows other lates or collectoins, even over 2 years ago, then you may be looked at as someone who can not manage their financial affairs.

One thing that also may help you is to enroll in first time homebuyer class and get the certificte and have it in your file. It's not much but at least it shows you are making an effort to become educated in the homeownership process to an Underwriter.

Incredible as it sounds, this $16,000 alleged debt is being reported by our former landlord without any Judgment/order, we have disputed this 100% from the beginning, that is why we are filing the Federal Lawsuit; this alleged debt only exists because se says it does - she hasn't taken us to court because she knows she'll lose. We believe she knows someone in the CA.

As far as the rest of our report goes, a Chapter 13 BK will fall off in 4/03, there are 2 paid collections that fall off within 1 year and we do have 2 charge-offs that are 2 years old.

There's a TON of FHA info in the old forum (http://bayhouse.com/discus/messages/2/2.html)

On OLD chargeoffs:

MOST of these accounts have been sold. The first thing to do is to dispute the accounts. MANY are deleted. If the creditor sold the account, they can no longer report the balance.

If the underwriter requires payment, contact them yourself and NEGOTIATE. Usually you can settle these old accounts for 5 to 10%.