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Answers (7)
- Scott Schroeder, "scoschro"
- Contributions:10
You can always apply. The question is, will you be approved? There are too many variables in this equation to really know. Will you have a big down payment? Have you been on your job a long time? Are you self employed? Are your collections because of a medical emergency or other hardship? Do you have someone that could co-sign on a loan with you? Will the owner carry some paper for you?
As much as I love this forum, you need to sit with someone and go over the details, or have a long conversation with someone over the phone.
My .02
scott@scott-schroeder.com
As much as I love this forum, you need to sit with someone and go over the details, or have a long conversation with someone over the phone.
My .02
scott@scott-schroeder.com
- Keane Ng, "Keane Ng"
- Contributions:297
One more thing. There's a chance that you qualify NOW and paying them can put you in a place where you don't qualify. There's also a chance that the money could be better spent elsewhere. Here's an example I just had.
I have a buyer who was told by a lender pay off $1500 of collections when they had a 605 fico score. They were old and their score dropped to 599. When I saw his credit, I saw the client had one credit card with a $500 limit that was maxed out. I told him that paying that down (BUT DON'T CLOSE IT) would boost his score. Voila, they're now above 620. You need someone who's willing to WORK with your credit and give the right advice, not just give you a "yes" or "no". Once you find this person, get your report and go from there. Yes, it's scary and embarassing to have a person look at your credit when you know it's not perfect, but it's the only way. Be honest and tell the person that ahead of time. If they're the right person for the job, they'll be happy to give you advice. Good luck!
I have a buyer who was told by a lender pay off $1500 of collections when they had a 605 fico score. They were old and their score dropped to 599. When I saw his credit, I saw the client had one credit card with a $500 limit that was maxed out. I told him that paying that down (BUT DON'T CLOSE IT) would boost his score. Voila, they're now above 620. You need someone who's willing to WORK with your credit and give the right advice, not just give you a "yes" or "no". Once you find this person, get your report and go from there. Yes, it's scary and embarassing to have a person look at your credit when you know it's not perfect, but it's the only way. Be honest and tell the person that ahead of time. If they're the right person for the job, they'll be happy to give you advice. Good luck!
- Keane Ng, "Keane Ng"
- Contributions:297
Good advice so far. Martin's comment regarding old collections can be true. Many collection agencies only report the account at the time it was created. If the collections are old and have not been updated recently, then paying them off can lower your score (THUMBS UP FOR MARTIN).
If your collections are brand new or if the collection company is updating the information regularly as a recent account, then paying them off will boost your score.
Wetdawg's comments about building credit is also very true. Even if you pay off the collections, it won't do you any good if you haven't built positive credit since then (ALSO THUMBS UP).
Regardless of how bad you think your credit is, you need to see your credit scores the way that mortgage companies evaluate credit so you can gauge exactly how much improvement you need to make. Martin also mentioned that 620 is the score to shoot for, which is typically true. We need to see how far from 620 you are and what the actual history looks like. I don't care if the credit is 450 or 619, only a full evaluation of the tradeline history will tell us what you need to do to build credit and approximately how long.
If your collections are brand new or if the collection company is updating the information regularly as a recent account, then paying them off will boost your score.
Wetdawg's comments about building credit is also very true. Even if you pay off the collections, it won't do you any good if you haven't built positive credit since then (ALSO THUMBS UP).
Regardless of how bad you think your credit is, you need to see your credit scores the way that mortgage companies evaluate credit so you can gauge exactly how much improvement you need to make. Martin also mentioned that 620 is the score to shoot for, which is typically true. We need to see how far from 620 you are and what the actual history looks like. I don't care if the credit is 450 or 619, only a full evaluation of the tradeline history will tell us what you need to do to build credit and approximately how long.
I would apply now. The loan officer will then tell you what, if anything, would be stopping you from getting the loan. Then you could move forward in fixing those problems.
- Don Groff, "Austin Texas Realtor"
- Contributions:355
As was said you can always apply. Most lenders will want you to have at least a 620 score but some will go lower down to 580. In those cases you cannot have any collections that are less than 12 months old.
So you are best served by talking to a local mortgage broker in your area who has access to investors who can possibly help you if your scores are less than perfect.
If you are less than 12 months with collections you will most likely need to wait and if the collections are older than 36 months paying them off will not typically help you in any way. It could in fact temporarily lower your scores.
So you are best served by talking to a local mortgage broker in your area who has access to investors who can possibly help you if your scores are less than perfect.
If you are less than 12 months with collections you will most likely need to wait and if the collections are older than 36 months paying them off will not typically help you in any way. It could in fact temporarily lower your scores.
- Martin Farris, CFP, "Dream Home Funding"
- Contributions:789
You can, of course, apply for a mortgage anytime. Whether you will get approved or not is the question. If your credit score is currently over 620, I would not recommend paying off the collections before applying. Paying them off will probably result in your credit score dropping, because you will be taking old unpaid collections, and turning them into brand new paid collections, thus causing your credit score to drop (because the scoring models look at the last activity date when scoring your credit file), and the collections to show on your credit for another 7 years.
Most lenders will approve you for a FHA loan with a score down to 620 (some have raised it to 640 or even 660), and if they want the collections paid, will have you do so at closing when it will not cause your score to drop before the loan closes.
If your score is under 620 you still may not want to payoff the collections. For instance, if the collections are very old and will be dropping off your report soon (they are supposed to drop off 7-years after the last activity date), you would be better off waiting for them to go away rather than paying them off, and causing them to stay on for another 7 years.
Most lenders will approve you for a FHA loan with a score down to 620 (some have raised it to 640 or even 660), and if they want the collections paid, will have you do so at closing when it will not cause your score to drop before the loan closes.
If your score is under 620 you still may not want to payoff the collections. For instance, if the collections are very old and will be dropping off your report soon (they are supposed to drop off 7-years after the last activity date), you would be better off waiting for them to go away rather than paying them off, and causing them to stay on for another 7 years.
- wetdawgs
- Contributions:26854
Credit scores are from a history of credit use, therefore, if at this time you have a number of collections on your record, paying off will help give a slight boost but not instantly repair your credit. (The actual number impact depends on your current numbers) Why won't it give you an instant great score? Because you have a recent history of poor use of credit/debt. Credit score is not simply how much you owe, but how responsibly you've paid your obligations over the last several years.
if i pay all my collections can apply for mortgage?
my credit is bad I owed a credit card and some collections but may be no more than 2000 if i pay all my debts can i apply for a mortgage.
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