We are buying a house. We had to pay off a debt to raise our credit score quickly, but another came up?

Question

Our mortgage is going on my husbands credit only. He has two collections on his report. Our mortgage lender suggested we pay off one and she would work with the credit reporting companies to up our score. Our loan is approved and locked in to a good rate, but we need the good credit score for our PMI. Anyway, we paid off the first debt and got the fax that all is well. She had his credit re-calculated and it went down. Another debt, a small one (1400) came up from 2002, but it was just turned into a collection agency this month. Anyway, my husband and I would like to pay this off too and recalculate, but our lender says that because of the date being so recent we would have to get the collection agency to agree to delete the date. Is that reasonable? We are supposed to close on our house on the 28th. Now, because of this credit issue and the score not going up we can't afford the payment and are locked in. Any ideas on the credit or how to get out?

She didn't notify us of the issue with PMI and the negative credit score until after we signed on the loan. Otherwise, we wouldn't have agreed. Unless his credit score goes up, the lowest payment is $200 more than we can afford a month and the only other option is an interest only and we've heard nothing but bad stuff.

Answer 1

Yoiu're talking about rapid credt re-scoring, and that happens a lot with mortgage lenders. It's not fishy at all.

Your lender is correct. The only thing you could ask the collection agency for is a pay for deletion, which means they get the money they're owed and, in return, they'll delete your file and it won't be reported to the credit bureaus anymore. Your husband's score will go up dramatically and quickly if another rapid re-score is done. But it can't happen without the cooperation of the collection agency. They have the ability to send an update pretty quickly, but whether they will or not is another story. Ask them and be sure to get it all in writing if they agree.

And to my knowledge, PMI has more to do with the equity in your house rather than your credit score. In other words, you must be putting less than 20 percent down. With less than 20 percent down, you'd have PMI even if your credit score was perfect.

Answer 2

Sounds fishy to me...I've NEVER heard tell of a lender contacting a credit bureau in order to raise someone's score. As far as I know, it doesn't work like that. A bureau is not going to arbitrarialy increase a score just b/c someone needs it for good loan terms. Hmmmm.
I've also not heard of any collection agencies manipulating dates in order to help someone get a mortgage loan. Are you working w/ a reputable lender?!
Sounds to me like you really cannot afford this loan if the PMI is $200 more than what you can afford. And you are going to go ahead and close? Seriously? That's like signing up for an automatic foreclosure.
Do some research about the laws in your state...it's your money. If you have not gone to the closing table yet, I still think you can back out of this loan and find something else. I'm sure the buyers won't want to hear that, but you have to look out for yourself.
Good luck!

Answer 3

The original contract you signed when you purchased the house should have a paragraph in it about the loan terms. See if the interest rate you are getting now exceeds the rate on the contract. And see if any other loan terms on the original purchase contract do not match what you are actually getting from the lender.
You should be able to get a "mutual release" if any of the loan terms are different than those on the contract.

Answer 4

I think all you can do is see if the collection agency will delet the date. Otherwise, if the loan is more than you can afford, I would think that the loan would fall through.