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Collections paid before closing


MyYear2008
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Good Morning All-

My husband and I have found our first home and the sellers have accepted our offer, we have had the home ispected and all is well, we are set to close on July 18. The only problem is that my hubby has two collections on his report that our lender is requiring that we pay before coming to closing.

I asked if we could instead bring the money to closing but they said no, that we need documented proof that the collections have been paid prior to closing. This is all fine and good, but what is the fastest and safest way to pay these and get documented proof by July 18th?

Thanks so much for any input!!!

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I would talk with another lender then.

Here is the problem.

Lenders have the right/privilege/ability to pull your credit the day of closing. If your scores have dropped below their minimum standard, then the will deny the loan.

I have seen it happen. I had a situation a few years ago where the Dear Husband "HAD TO" have a new truck. The lender pulled credit a day before closing to see if their DTI had changed due to additional debt being added that they did not know about. There was no actual debt-he had not actually found a truck he liked - but because of the credit inquiries the credit score dropped 2 point. In this case it "just cost" an increase in interest rate.

Here is the deal. When you pay off old bad things, they become a new bad thing. Depending on where your scores are they could drop 10-25 points. The lower your scores are - the more the drop.

So, you are taking a big risk paying off the collections prior to closing.

Charles

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Sorry to hijack your thread, MY08. I am intrigued by firstsource's reply and have a question for him.

There are lenders who won't require collections ot be paid prior to closing? I am new to mortgages since I just started research in hopes of buying a home next year, but I thought ALL lenders required collections and judgements alike to be paid before closing?

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I have seen it happen. I had a situation a few years ago where the Dear Husband "HAD TO" have a new truck. The lender pulled credit a day before closing to see if their DTI had changed due to additional debt being added that they did not know about. There was no actual debt-he had not actually found a truck he liked - but because of the credit inquiries the credit score dropped 2 point. In this case it "just cost" an increase in interest rate.

Here is the deal. When you pay off old bad things, they become a new bad thing. Depending on where your scores are they could drop 10-25 points. The lower your scores are - the more the drop.

So, you are taking a big risk paying off the collections prior to closing.

I spoke with my lender regarding this issue and she assured me that the credit report that they pulled on us is the only report that will be pulled for this mortage as it is good for 120 days and we are locked in at our rate so there is no chance of that changing.

So, I am back to square one of needing to pay off these collections asap. I am wondering if it would be safer to pay them by phone with a credit card rather than my bank account as this way, with the credit card I can show proof that they were paid via my statement?? Does that sound right?

Thanks again for anyone input. :)

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Yes, most lenders/investors just want to have the collections paid at closing.

In your case, I would be sure to be able to bring to closing proof that these accounts have been paid. The reason that our bank does not ask that, is that stuff happens, and the most secure way is to bring the funds to the closing (and yes, the funds have to be in a cashiers check if they are over 500, depending on the title company you sign at) The Title company has a fudicuary responsiblity to make those payments as instructed in the closing package instructions they get from the bank/lender.

As I have said before, there are lots and lots of lenders and they are all being careful to make sure that their loans can be sold in the market.

Charles

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Something else to keep in mind, it also depends on what type of collection they are.

There are still quite a few lenders that will overlook any medical collections and even if you have other, more recent collections they may just want you to include 3-5% of the balance into your existing monthly debt. Meaning you wouldnt have to pay them off.

Hope that helps

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No, Unfortunatley they are not medical debts and they need to be paid before closing. These are debts my husband let go to collections back when he was 18 years old, they are both set to fall off in Sept. of 09...but I need them off now so....

I called both of the CA's to get their mailing addresses and am sending out money orders to the CA's tomorrow and keeping my fingers crossed.....

I will let ya'll know my horror story if I get one. Hoping I don't but sounds like I'll get shafted somehow?!?!

Thanks for everyones help :):smile:

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I would suggest that you make photo copies of the Money Orders before you send them, as when you make copies of the receipts they can be hard to read. I am sure that you won't need to have copies of these, but if you do, the clearer the better.

Charles

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You may have sent your money orders by now... But when I had to pay off 2 of our collections (medical and had to be paid) I talked to a supervisor at the CA and we agreed if I western unioned the money to them (Both accounts were at same CA) they sent an official fax back within 24 hrs stating the account was PIF and signed it. So I had that proof at closing.

(My work let me use their fax machine to receive) So maybe if you sent the m.o. wait a few days and see if they received it and ask if they can send a fax back to you stating it was paid if time is not on your side.

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