Curious How Collections Affect You

Dated: 01/08/2018

Views: 311

Did you know that according to NerdWallet More than 35 million adults may be working on unpaid medical debt, and while the debt may not impact your credit score as much as it did before FICO 9 changes it can cause problems when applying for a mortgage. Your credit score is an important factor 

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Medical debt is still debt, which means that it can raise your debt-to-income ratio the same as a car loan. The closer you get to 43% (aka the magic DTI cut-off po

Image titleint), the less likely you are to be approved for a mortgage. The debt-to-income ratio is how many lenders measure a persons ability to manage monthly payment and the ability to repay the debts. A DTI is calculated by dividing total recurring monthly debt by gross monthly income, and then reflected as both a net and gross percentage. 


 


When handling medical collections, depending on how far the debt has gone into the collections process there may be several ways to approach the situation. Lenders that do allow you to secure a loan with a medical collection may consider some of the options below:Ignore the collection altogether depending on the total debt and close on the loan.Require the debt be paid in full on or before the before the closing will be cleared and approved.Require that a certain percentage of the outstanding balance get figured into your monthly debts to ensure that your debt ratio is low enough to qualify. Every lender will be different and have requirements, so shopping around different lenders will often get you different requirements and suggestions. Generally, lenders want to protect themselves from potential default especially for larger sized outstanding bills, with the potential for judgement. Many people are surprised to find what is needed or what may be with in their ability to fix. Reach out to several lenders and review the recommendations see what options you have and what actions you may be able to take. 


 Home-ownership can be rewarding! 

1. Home-ownership is an investment. Unlike a car and many other purchases that decrease in value, a home is a purchase that generally appreciates over time. 

2. Tax benefits and incentives. Both federal and local government encourages home-ownership by offering tax incentives for homeowners. Your mortgage interest is often a substantial tax deduction. 

3. Put a stop to rent increases. A fixed-rate mortgage means you’ll have the same mortgage payment for the term of the loan and allow you to make a long term budget. 

4. Your home is your castle. Renting doesn’t usually come with the ability roll with the changes and allow your living space to better suit your needs.




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