Old Collections & FHA Loan

[cheyenne52883]

My husband and I are preparing to buy a home as soon as we finish saving up for a down payment and closing costs. We make decent $$$ ($75,000 a year) and my credit is pretty good (660ish) but my husband's is pretty ugly (630ish but with lots of old collections).

I plan on trying to remove as much as I can but I was wondering if old debt is a major problem when in comes to FHA loans (I have heard both ways)? All of these debts are at least 3 years old from the DOFD.

[JeeperInAZ]

It really depends on the lender/underwriter and their requirements. FHA has certain requirements, but lenders and underwriters often add other restrictions. When I was trying to buy a home last year I had a lender that was telling me FHA needed a mid-score of 680 and zero late payments in past 24 months. Talked to another lender and he told me about lenders adding their own restrictions and his requirement was a 620 mid-score and no lates for 12 months.

My advice is to talk to several lenders and see what they say about your situation.

[1stStep]

Generally, a mortgage lender is going to want these paid off...again, it will depend on the lender / underwriter.

[victoria stiles]

To qualify for a FHA loan the applicant should have at least 2 years of steady employment, ideally in the same field.

[thomassl]

When I was in the process of purchasing my home through FHA, I did have to remove any negative information. I was able to do this successfully with goodwill letters. I had one medical case in which I was able to sit down personally with the accounts manager, pay the balance and in turn they gave me a letter verifying that all negative information would be removed from my credit report! It was! Once all the negatives were removed, it was clear sailing from there!

[2ndTimeAround]

Originally Posted by cheyenne52883

My husband and I are preparing to buy a home as soon as we finish saving up for a down payment and closing costs. We make decent $$$ ($75,000 a year) and my credit is pretty good (660ish) but my husband's is pretty ugly (630ish but with lots of old collections).

I plan on trying to remove as much as I can but I was wondering if old debt is a major problem when in comes to FHA loans (I have heard both ways)? All of these debts are at least 3 years old from the DOFD.

I was a loan officer for seven years - your credit score is ok per the FHA required score, it is up to the lender to approve you. I recommend dealing with a broker because if any issues come up, there are options. With a high 600 to low 700 credit score - it is because the closing costs and/or the interest is lower.

Working with Wells, BoA, large lender, etc, if any small issue come up, there are options.

Ultimately if you have a high 700 score with no issues, it is best to work with a local credit union. Closing costs are less, rates can be lower, this lending institutions are owned by members. Compared the large conventional banks being own by investors looking to make a profit.

As for old debt - it depends on what it is. If it is a collection account, even three years old, you will be required to pay this because you get get dragged into court and a lien placed on the property. If it is a debt that your making payments to, as long as your DTI ratio is with limits, then you possibly will not be required to pay if off.

With FHA loans - you will 100% have MI (mortgage insurance), that needs to be added along with you principle and interest, and escrow payments. FHA mortgage insurance is calculated two ways, based on the LTV (how much you put towards the down payment). If you put down 5%, the annual premium is 0.50%. If you only put down the required 3.75% FHA down payment, the annual mortgage insurance premium is 0.90%.

An example.
Loan Amount $200,000 x 5% x 30yr (note taxes and insurance not figured)

3.75% down = $7,500.00
Loan amount $192,500
P/I payment = $1036.
Mortgage Insurance = $144
Payment to the bank = $1036 + $144 = $1180
After 5 years amount paid to the bank = $70,800

5% down = $10,000
Loan Amount $190,000
Loan Amount = $1023
Mortgage Insurance = $79
Payment to the bank = $1023 + 79 = $1102
After 5 years amount paid to the bank = $66120

Technically FHA mortgage insurance can drop off after five years, if your LTV score is less than 78%. You have to go through a bank approved appraisal company that you pay for ($350 to $500).
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[aaliasmith]

FHA may be the all that you need. Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan.

[aaliasmith]

The reduced value of loan limits are now scheduled to take effect at the starting of the 2012 . Now the FHA loan limit for single-unit properties in areas with high value of costs of living .