Mortgage With Collections

If you need to refinance your current mortgage or purchase a new home and you have collection accounts you are not automatically dis qualified. Many sub prime lenders will allow collections over 12 months to be left open for a purchase or refinance mortgage.

A common mistake to avoid when applying for a new mortgage or a refinance in regards to collections on your credit report, is not to pay them off or make any payments to them if they are old accounts. A payment to a creditor that owns the collection may update your account which unfortunately moves that derogatory item as a recent activity.

It is important to note that when you contact a collection agency and barter down a payoff amount that it will show on your credit report as "settled less than amount owed". If an account has just gone into collections, try contacting the original creditor and paying them directly. You may be able to negotiate fees and finance charges being "removed" and then paying the debt in its entirety. Make sure you get a letter from the creditor stating the debt has been paid in full.

There are still many programs and mortgage loans available for consumers with collection accounts reporting to their credit report. Even with the recent subprime "Shakedown", there are still lenders who will lend to borrowers that have some open collections. The lenders may not all be quite as loose as they were in terms of having open collection accounts, but they are still forgiving of open collection accounts. Therefore, there are still many refinancing and purchase options available to you even with open collections showing on your credit.

If you have a debt that has gone to a collection agency it will be on your credit report and can effect getting a mortgage. There are still lenders that will provide a loan but you may have a higher interest rate on your mortgage.

Have you taken steps to make the collection agency validate the debt? The process of debt validation is a simple procedure that requires your creditors or collectors to follow a set time frame while proving that the debt the claim you owe is in fact yours. If the collection is old or if the collection agency keeps shotty records you stand a good chance of having the collection entry removed entirely from your credit report. For more information about debt validation contact your mortgage broker or search online for "collection agency debt validation letter".

If your lender requires you to pay off collections, request that they be paid off at closing. Take the time to negotiate a reduced payoff if you can and make sure to obtain the collection payoff in writing.

Some Fannie Mae programs allow you to obtain a mortgage with up to $5000 in collection accounts.

» DISCLAIMER: The information contained in this article on 'Mortgage With Collections' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.