Anybody know anything about an FHA mortgage loan??

Question

I am looking to buy a home within the next year. Should I pay off my old collections before trying for an FHA loan or will that drop my score? I pulled my Transunion score today and it is 624. I believe my Experian and Equifax are even lower...

Answer 1

How old are the collections? If they're older than 3 years I wouldn't bother with them. Medical collections will not be counted. If you have any other questions regarding FHA loans feel free to contact me. I have 3 years experience processing FHA loans.

Answer 2

When getting an FHA loan, they may or may not require those accounts to be paid off.

It's believed that paying off an old collection could in fact lower your scores in the short-term, because you've brought the date of last activity on that account more current.

Thankfully, FHA does NOT have a minimum credit score requirement. Nor should there ever be a higher rate charged due to a lower credit score. FHA does NOT charge higher rates for lower scores, don't let anyone tell you otherwise (I've seen some banks try that).

I'd leave it to your loan officer to advise you about paying them off. It's ultimately the decision of the person who is underwriting (making the credit decision) for your loan, whether they feel the collections must be paid or not. If yes, you could just pay them at the closing table. If no, pay them after you close, just because eventually, to get your credit better, they need to be gone.

You might be able to negotiate the collections down to about half of what you currently owe also. Never send a single penny without a written agreement accepting a settled amount as payment in full, or you'll find that a year later, someone wants the rest of that money. And don't lose that piece of paper for a couple years!

For an FHA loan, you might find that a bank loan officer is your best bet. The earlier you start the application process, the more time you'll have to be able to work through any issues needed before you even identify the house you want to buy. A good loan officer will take the time upfront to get in financially ready to buy, even if that's a few months away.

Also, do a internet search for the housing finance agency for your state. They can refer you to lenders that offer the grants and subsidies for first-time home buyers. It's possible you might qualify for some assistance, both for down payment, closing costs, and even a rate that's lower than the market.

Answer 3

My home was purchased under FHA. There are alot of pros adn cons to that.

1st: pay off your collections... that will hurt you alot. A score that low will make everythign a bigger hassle.

AFTER THAT:
FHA is a federally guaranteed loan. That means the bank is promised the money in full even if you screw up. That is why banks are willing to loan the money out.

FHA will require DOZENS more checks, permits, inspections, etc than a regular loan. Which is good AND bad. Obviously, you will have much more confidence in your purchase. However, it slows down the process.

FHA requires a smaller down payment.

FHA is an INSURANCE you are paying for. $20-$50 per month of your payment will go to this insurance. Once you have paid a certain amount of principle off without FHA having to pay on you, you are entitled to recieve a refund on all/some of this amount.

Below are some really good sites to check out to see how much home you can afford adn all teh ins adn outs of buying a home.

Good luck!!

Answer 4

Paying off old collections will not necessarily affect your credit score one way or another. Even if they are paid off they will still show on your credit report as a collection account unless you negotiate with the creditor to remove them from your credit report.

Note, however, that the people underwriting a mortgage may require you to pay off the collection accounts before approving a mortgage.

Above all, educate yourself as much as possible about how credit reports work as well as the ins and outs of home loans.

Answer 5

Absolutely pay off old collections. The income to debt ratios are a large portion of how much money you will be able to borrow. The higher your credit score the lower the interest rate.