I Have Unpaid Collection Debt on My Credit Report. Can I Still Get a California Mortgage? YES!!!

Just like you don’t need perfect credit to qualify for a California mortgage. And you don’t need to pay off all collection accounts to qualify!!!. At  US MORTGAGE LENDERS We don’t even count medical bill against you!!Credit card bills, collections and charge-offs – you can have some or all of these and we can still qualify you for a California mortgage today!!


Of course, it’s never quite that simple. To qualify for a California mortgage with collections It’s often a question of what kind of collection accounts are on your credit? How much are the collection accounts? And what type of lenders and loan types you’re considering?

Most California mortgage lenders can have different caps on collections and requirements for things like debt-to-income ratio and derogatory credit. Here’s a closer look at how your collection accounts can come into play during the California mortgage process.

Looking at Your Debt-to-Income Ratio

A big metric in the mortgage industry is your debt to income ratio. California mortgage lenders may calculate two different ratios. The first is the difference between your projected housing costs and your gross monthly income and another that considers your total monthly debts and monthly payments reflected on your credit report. In the mortgage industry we call these “front-end”= housing expense and “back-end”= housing + all other monthly payments only on your credit report.  Most California mortgage lenders really do not want to go over 50% of your gross monthly income for your housing plus all other monthly payments on your credit report.

All California mortgage lenders will pull in your major monthly payments/obligations from your credit reports, including things like car loans, student loan payments, car loans, credit card payments, the projected new mortgage payment. But now California mortgage lenders will also include unpaid collections over 2000 to your monthly payment. Any collections cumulatively over $2000 the lender will take .05% and add it back to your debt to income ratios. For example, if you added up all collection account and they total $3000 the lender would take 3000 in collections x.05= =$150 add to you monthly obligations increasing your debt to income ratios.

CONVENTIONAL = The max debt to income or back-end DTI ratio for a conventional purchase loan is 45%

FHA The max debt to income or back-end DTI ratio for a FHA purchase loan is 65%

Remember these kinds of figures represent a ceiling. If you have a lot of collections you might have a problem or max out your max Debt to income ratio.  You will need an incredibly strong loan application in order to close with DTI ratios that high.

Dealing with Derogatory Credit Collection accounts

How Much House Can You Afford?

How Much House Can You Afford?

If you have to many collection accounts you may be considered high risk for default. Lender look at to many collection accounts as a disregard for debt. Also California mortgage Lenders may also have a cap on the total amount of collection accounts and derogatory credit you have. This is a blanket term that can include things like collection accounts, charge-offs, liens and judgments.

Every lender has overlays to the amount of accounts you can have in collections some allow up to $5,000 and other California mortgage lenders will allow $10,000 or more in collection accounts, these caps can vary by California mortgage lender. Some California mortgage lenders like us disregard medical accounts medical collections or bad accounts that borrowers are actively trying to repay.

California mortgage lenders don’t typically factor collections and charge-offs into your Debt to income ratio calculation unless you’re actively making payments on those accounts. In fact, some California mortgage lenders  will essentially ignore a collection if you can show at least a 6 month timely payment history of on-time payments.

Charge-offs are debt accounts at least six months past due that creditors have for accounting purposes deemed unlikely to be paid. Some lenders will count charge-offs toward their bad credit cap, while others ignore them.

Much like with DTI ratio, California mortgage lenders may grant exceptions for derogatory credit if a mortgage applicant has solid compensating factors.

Tax liens and judgments will usually need to be paid in full to show a zero balance. Florid a mortgage applicants with a tax lien may still be able to move forward if there’s a repayment plan in place and at least 6 months of on-time payments history. California mortgage lenders will also count the monthly payments toward your DTI ratio.

High debt levels including judgments, large collections and tax liens and other financial troubles are all likely to perplex your California mortgage approval. California mortgage lenders will require additional bank reserves.

The other consideration is whether it really makes financial sense to stretch your debt burden even further with a California mortgage loan. To be sure, DTI ratio doesn’t tell the full picture when it comes to California mortgage affordability.

Make sure you’re putting yourself on solid financial footing regardless of what a California mortgage lender’s exceptions and guidelines allow.

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