Some good answers down below in what to do. I believe I can give you a little insight into what to expect when you pay old debt.
If you choose to pay the old debt up front, you will certainly lower your credit score and damage your ability to purchase. When you pay any old debt, what happens is this debt renews itself and then your credit gets affected by the new date of the debt thus lowering your score. Having a company to help your negotiate this debt settlement is a good idea if you are insistent on paying these off prior to buying a home. I highly recommend waiting until after you purchase though to begin the process of repayment. In most cases, unless the debt affects the title of the home, we would not require the debt to be paid. Collections and charge offs are not much of an issue, judgments must be satisfied.
In regards to calling several lenders, it's similar to calling several Realtors, several of any industry. Unless you are highly versed into what you are looking for and what the differences between lenders would be, you could very easily get misinformation from an inexperienced loan officer or Realtor. My suggestion would be to seek out a referral from a trusted source or note how answers are addressed here and select someone to speak with.
I'd like to recommend a Realtor for you to speak with who also teaches Real Estate at a local junior college. Pose your questions to her, see where the answers fit within the answers given here and you may find the expert you need.
Cynthia Nordskog 951-526-7300
She is broker owner of 3Q Real Estate.
Please call if you need another experienced opinion.............. I have been helping my clients with their credit for a long time............. :-)
I'd recommend you hold off on settling all of your debts until a loan officer can review the debts that you are paying off, as you aren't always required to pay off collections/charge-offs as part of the loan approval, particularly when they are older in age (however judgments & tax liens are required to be paid, or set up on a payment plan). A smarter move could be to use the large amount of funds you are expecting as a down payment on the home you are looking to buy, potentially allowing you to qualify for more loan options & a lower monthly mortgage payment. I'd first interview several loan officers and be sure to have a copy of a recent credit report from a website like https://www.annualcreditreport.com/ (free) or https://www.myfico.com (comes with FICO scores) so you can get all of their opinions & advice, then pick which one you'd want to move forward with on the pre-approval. The underwriter who would be reviewing your loan as part of the pre-approval process will say if the old debts you are referring to would need to be paid or not, and that can all be done before you make an offer on a home so you know exactly where you stand.
Shane Milne | Lending in all 50 states | NMLS #81195
shane@thebesthomeloans | 949-273-4161 direct
I'm a local Temecula mortgage lender and have a lot of experience in dealing with credit.
You would be surprised how many people make the mistake thinking they have to pay off an old collection to qualify for a home loan.
I've had people call me literally the day after using all their savings to pay off debt and it ruins their chances of qualifying.
If you would like to discuss your situation and determine of you would like to work with me, call me direct (951) 215-6119.
I also write a highly ranked mortgage blog that helps people learn about home financing that most lenders will not reveal to their borrowers.
i can also refer you to a local real estate agent who can help you find the home you are looking for.
increase your credit score. I have a person who works with families/individuals on a
case by case bases.
Hope to hear from you.
There are a few more factors here in play that will determine what you will be able to do.
Your credit score - how you settle debts and when will determine your new credit score. Paying collections that are older will renew the date and lower your score dramatically. I suggest having that analyzed first before going forward.
Debt settlement - time from date of settlement is very important. I have a chart I can email you which will tell you where you stand.
With over 27 years of lending, I'm very familiar with these issues and have credit pros to help with your scenario if needed. How and when you settle your debts may be the crux of your transaction.
You need a Mortgage Pro dedicated only to doing mortgages and not to both Real Estate and loans. This could be expensive if not handled correctly. I've closed many loans over the years with clients who were credit challenged.
If you would like a full work up to see what your next step must be:
South Pacific Financial
May I suggest George Raymondo. He has a very informative blog here on Trulia and is a fantastic lender who I think may be able to assist you with this. He's very direct and will let you know exactly what you'd need to do to prepare for home ownership. I've provided his Trulia link below. If you want to contact me, I would be happy to provide you with his direct contact info.
I've worked in this area over 15 years and If I can answer any further questions for you please don't hesitate to contact me.