FHA loan and past credit problems

jbevins · Joined: 02 Dec 2007 Posts: 2 3.56 Dollars($)

I am applying for a mortgage as a first time home buyer. I've picked out the house, and according to my mortgage lady, I shouldn't have much problem securing the FHA loan i need. I have signed the contract and placed a deposit on the home (its far too good of a deal to pass up), but I do have past credit issues that i'm afraid will come back to haunt me.

I went ahead and signed the contracted based on the fact that i will get my deposit back if i don't qualify for a loan, but here is my issue:

I have 7 items on my credit report that originate from the years 2003-2005. 2 credit cards, 2 cell phone collections, an insurance company collection, a medical collection, and a judgment stemmign from a credit card from many years ago. ALL OF THESE DEBTS HAVE BEEN PAID IN FULL. I have letters from the companies verifying this, and all are marked as paid on my credit report except the credit card that resulted in a judgement (the collection company has not marked it as paid, but the judgement IS marked as PAID on the report). I have paid the judgement in full, have a copy of the canceled judgment signed by the attorney that represents the collection company. But what concerns my mortgage lady is the fact that the judgement was just entered this past january, and just showed up on my credit file this past june. she is afraid that this will look like "new debt" and that the FHA underwriter will not approve my loan based on this. she said if i could show that it was old debt that i recently paid off it should be ok. is this true?? EVERY single one of my old debts are paid and now i only have a car loan which is 3 years old and NEVER LATE, and student loan which is 3 years old that has NEVER been late. what are my chances of qualifying?? oh i'm an RN and make about 65K a year so i can definitely afford the $140K loan i am looking get. PLEASE GIVE ME SOME ADVICE AS TO WHAT TO DO!!!! i've written a letter of explanation, but the fact of the matter is this stems from a period of time in college when i was irresponsible with my credit and just disregarded these debts until i realized what a mistake i had made, now all paid off. WHAT DO YOU GUYS THINK?????

jenkin7 · Joined: 04 Jun 2007 Posts: 939 140.80 Dollars($)

Hello Jbevins,

FHA requires clean credit for the previous 12 months. Any listed judgment has to be paid off completely but you may also qualify if the judgment is in repayment through a formal written agreement for at least 6 months. So, I think if you can prove that the judgment has been paid off, it will be easier for you to qualify.

FHA considers the debt-to-income ratio before the mortgage approval. The ideal maximum debt ratio is 41% or less. You may find out this ratio by dividing your monthly debt payments by your gross monthly income.

jbevins · Joined: 02 Dec 2007 Posts: 2 3.56 Dollars($)

the judgment is paid in full. i have a copy of the authorization to cancel judgment from the state superior court. i have paid it in full and have documentation of this. my debt to income ratio is very very low. i owe $389/month car loan, $102/month student loans, no credit card debt at all. my gross monthly income is around $5700. according to your formula my debt-to-income ratio is 8.6%. this is FAR lower than the 41% you mentioned. will this help me qualify?

PLEASE keep in mind that ALL MY DEBTS including the JUDGMENT are PAID IN FULL. I OWE NOTHING execpt my car loan and my student loans. will the fact that I just recently paid this judgment off prevent me from qualifying for a loan?

also all these delinquent debts are from 2003-2005. NONE OF THESE including the judgment are from the past 24 months, although I have just recently within the past 24 months paid these off. all of my collection accounts were paid last year, the only item i paid this year was the judgment, HOWEVER they are all PAID.

how likely do you think that i will get approved????

please help!

jenkin7 · Joined: 04 Jun 2007 Posts: 939 140.80 Dollars($)

Hello Jbevins,

I don't think it will be a problem for you to get a mortgage if you can prove that the judgment has been paid in full.

Your debt-to-income ratio is also quite low and this will help you to qualify for the loan easily.

You can calculate the maximum amount of loan that you may qualify for using the following calculator http://www.mortgagefit.com/calculators/howmuch-borrow.html

Hope this helps you. Feel free to ask if you have any further problem.

banker0679 · Posted: Mon Dec 03, 2007 9:29 am Post subject:

one of the problems that arises with most FHA loans is that the lender doesnt offer 'manual underwrite'. If they dont, they're looking to get you approved through the 'automated system'. If you're denied on there...then most likely you're loan will be denied.

If your lender offered manual underwrite...you can provide these documents to them..and they will manually approve you.

livinginnky · Posted: Mon Dec 03, 2007 1:20 pm Post subject:

You shouldn't worry as long as you can prove it and the account #'s and dollar amounts match up.

Do expect a delay and many questions from the underwriters. The credit report is not the end all as many times it is inaccurate. It will more than likely feel like you are jumping through hoops, but I think in the end you will get approved.

Have you tried disputing with the credit bureau's directly?

Check this website

http://www.ftc.gov/bcp/conline/pubs/credit/freereports.shtm

And if you have proof that you have shown your LO that these debts are definately paid and she is worried.... I would worry about her.

michelle · Posted: Tue Dec 04, 2007 3:53 am Post subject:

jbevins

Welcome to the forum.

Eric's assessment is correct. As long as you can prove that the judgment is paid, you should be able to obtain an FHA loan. If the LO has doubts, it is possible she does not have access to the manual underwrite program that banker described. You may need to find another loan officer.

Please do take the time to get the judgment reported correctly on your credit report. Once you get your mortgage, your credit report may still not report the account as paid and it really would benefit you in the long run to have it reporting correctly.

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