Not sure if you mean the collection account is paid or not, so I'm going to assume not. I'd hazard a guess that an open collection account of that size is going to be an obstacle to a successful loan approval. I'd recommend you meet with a Local Mortgage Banker to get Prequalified. Your Mortgage Banker can review your credit, discuss the collection account and the appropriate actions to take in order to resolve this issue and get Prequalified.
The collection account is going to be an issue.
Medical collection accounts are, in the case of VA and FHA, are okay to leave outstanding.
Collection accounts in excess of $1000 are not okay to leave outstanding.
As stated below, these larger amounts can be attached to your property as a lien and compromise the lender's (the loan that VA is guranteeing) collateral.
In your case, if I were your lender, I would suggest that you leave the collection account as it stands until we go to close escrow. Should you pay this collection account now, although you make it zero, you will make the age of it 'fresh' again...so...
I would suggest, as your lender, that you submit your loan for preapproval and state that you will pay the collection account at close of escrow.
This allows you to negotiate a VA transaction where the seller and/or lender or combination give you a credit for your closing costs. On a VA transaction, the seller may give you a credit of up to 6% of your purchase price. These funds can be used for closing costs and, in this case, to pay toward your collection account. The remainder of the balance can be paid cash by you or additional credit from the rebate from your chosen interest rate.
VA loans are probably the most flexible in today's market, however it will depend on how many Lender overlays are in place from the wholesaler's contract with VA or special inter office rules that they apply to minimize default.
Very good questions and congratulations on exploring the financing aspect of homeownership before looking at homes. The good news is that there are positive options for you to become a homeowner once again. I would recommend you direct your initial questions to my lending partner, Laura Berg at On Q Financial. Her phone number is 818-517-7111. Her email address is Laura@LauraBerg.com
We work closely together and she is currently working with one of my VA clients who had a Bankruptcy. We are in escrow.
Please feel free to contact me if you have any questions.
I am very happy to answer all of your questions and help you get to where you need to be.
Keller Williams Exclusive Properties
Our underwriters can review the details of your situation before you make an offer on a home so you'll be thoroughly pre-approved knowing if you'll have to pay the collection or not.
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