Don’t Pay Off Your Collection Accounts
Many people have late payments, collections, and charge-offs showing on their credit report. Did you know that in many cases you do not have to pay off collection accounts and charge-off accounts to qualify for a mortgage?
Here’s what you need to know.
If you are getting a conventional loan (a non-government loan), chances are pretty good that your lender will need to comply with the Fannie Mae underwriting guidelines. Here are the Fannie Mae guidelines for past-due, collection, and charge-off accounts:
If an account is reported as being past due (currently late), the account must be brought current before the closing.
If you are buying a one-unit, principal residence (a house you are going to live in), you are NOT required to pay off outstanding collection or non-mortgage charge-offs – regardless of the amount.
In the event that you buying a 2-4 unit owner-occupied or second home, collections and non-mortgage charge-offs totaling more than $5,000 must be paid in full prior to or at the closing.
If you are buying an investment property, individual collection and non-mortgage charge-off accounts equal to or greater than $250 and accounts that total more than $1,000 must be paid in full prior to or at the closing.
Most mortgage transactions are for one-unit principal residences. That means most people who are applying for a mortgage do NOT need to pay off collection and charge-off accounts.
If you have any questions, contact us and we’ll let you know the rules for your specific transaction.