This is good advice here in California as well, though I'd add that you can avoid paying off some things by having a loan officer pull your credit and see how it appears in an actual home loan credit pull, versus the "consumer credit pull" that you will see if you check your credit yourself.
The consumer credit pull will also likely be quite a few points higher in terms of your number score, versus the home loan credit pull. We've seen consumer credit coming in at 650, but the home loan credit pull show 600 FICO.
With Conventional Mortgages becoming more popular in recent months, because of FHA changes and proposed changes, I felt that it would be good to write a blog on a regular obstacle for Conventional Borrowers. With many people having lost their jobs in recent years, it is not uncommon for them to have during that time acquired Judgments, Liens, Collections, and Charge-Offs. So a regular question is Do Judgments, Liens, Collections, & Charge-Offs Need To Be Paid Before Closing? The simple and quick answer to that question is YES. But, and there seems to always be a but, there are some exceptions.
The Fannie Mae Guideline on Judgments, Liens, Collections, & Charge-Offs is as follows. Delinquent Credit Accounts such as:
That have "the potential to affect Fannie Mae's position or diminish the borrower's equity -- must be paid off at or prior to closing." However, like I stated above there is a but. Fannie Mae makes an exception for Collection or Charged-Off Accounts the are less than:
- $250.00, or
- If the total cumulative balance is $1,000 or less.
Fannie Mae makes one additional exception for Collections, and Charged-Off Accounts, but this third exception has little chance of getting Underwriting approval these days. The exception is that if Collections, and Charged-Off Accounts exceed the above limits, they do not have to paid off prior to Closing IF the Borrower(s) can meet the following:
- Have a strong Credit Profile
- Sizable liquid reserves
- Prove that the accounts do not present a threat to Fannie Mae's First Mortgage Lien position
- Prove that the outstanding balances on the accounts are not likely to affect the Borrower's Equity Position
This third exception will be very hard to prove to the satisfaction of Underwriter the, so good luck.
My advice to anyone who is contemplating on purchasing a home, and has Judgments, Liens, Collections, & Charge-Offs is to pay them off as soon as possible, because they will also impact their credit scores. So the rule of thumb to the question Do Judgments, Liens, Collections, & Charge-Offs Need To Be Paid Before Closing? Is YES, and as quickly as possible.
Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org
Lisa Delzompo (951-704-4559)
"May your home always be too small ... to hold all your friends!"
CA Dept of Real Estate, Real Estate Broker License #01379811;
NMLS Identifer #331744
REAL ESTATE: www.SandToSeaProperties.com. Covering northern San Diego, Oceanside, Temecula, Murrieta, Riverside County and desert areas of Yucca Valley, Joshua Tree and Twentynine Palms, CA.
LOANS: PRW Lending, Inc. Call direct 951-704-4559, or email me at lisa(@)sand2sea.us
Information is deemed reliable but is not guaranteed. Information is general and may not address your particular situation. Do not rely solely on this or any information you find on the internet. You should consult relevant professionals directly about your real estate, financial, etc., situation.