Home Refinance

Question: Can a collection prevent a home refinance?

(Posted by: yamafx4dude on 2009-06-25 06:35:32)

Quicken Loans is telling me that I need to pay off a collection from an apartment complex before they will move forward with refinancing my home. Problem is, I cant afford to pay the collection AND all the refinance fees. Can they do that? In Texas, creditors cant take your home over a debt. So why does this matter? Would the collection get removed if I started payments on it or would it stay there and just reduced as the amount goes down? I find this pretty STUPID that I cant get a loan over 1 collection.

Posted by: Noneya on 2009-06-25, 10:01:01

It depends on a couple of things. 1) Are you doing a conventional loan? If so, every lender will require the collection to be paid prior to closing because it is a requirement of the end investors - Fannie Mae and Freddie Mac. 2) If you are doing an FHA or VA loan then it's the lenders decision whether or not the collection has to paid. I had a client with $16,000 worth of collections that Countrywide said had to be paid before she could close. I found another lender that didn't and she was able to buy a new home and save $16,000. Now if you are talking about a judgment and not a collection, every lender will require that to be paid prior to closing. Some lenders will allow a collection/ judgment to stay open as long as you provide a repayment agreement with a clean payment history of 6-12 months.

Posted by: Judy on 2009-06-25, 06:42:57

YOU might find it stupid, but the lender gets to decide whether they'll do the refi, and if your credit has something shaky on it, they won't do it and don't have to. In Texas creditors can't take your home over a debt? That doesn't include the mortgage holder, I assume, just for other, unsecured debts.

Posted by: wizjp on 2009-06-25, 06:44:47

Uh...in TX, they have a lien against your future acquired property. In addition, the outstanding lien is lowering your credit score; and as a matter of course, all lenders require outstanding collection to be released before they make a new loan

Posted by: David Z on 2009-06-25, 06:46:30

Quicken is not going to feel comfortable making you a loan if you are having trouble paying an existing debt. they see you as a high risk of default. Settle with collection agency and pay that old debt off.

Posted by: bobby on 2009-06-25, 06:50:00

Whats the collection amount and how old is it? You will not be able to refi until you pay off the collection. Also, your credit score will be lower due to the collection and you will get a hit on the rate.

Posted by: ranger_co_1_75 on 2009-06-25, 07:13:04

The banks concern is Quicken will garnishee your paycheck and you won't be able to make the mortgage loan payment. You are in a bad spot, Approach the bank with the possibility of including the quicken loan in the refi. The bank pays Quicken and adds the money to your mortgage. This benefits you both. Your pay check is secure, they are in a better position because your pay check is secure, and you will get to deduct the interest on the loan because it is a real estate mortgage.