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Question By
mdkco

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Will medical collections prevent me from getting approved for a mortgage?
I got pre approved on a new build home with the preferred lender in April. I have paid $2500 earnest money and $3200 for some upgrades. I hadn't heard from the lender in a while and had been trying to reach them. They finally got back to me tonight and said I was declined because of medical collections. My mid score is 696 with the only thing bad on my credit is medical. Am I screwed? Help!!!

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Forget "pay for delete." I can't believe people still think that's a valid way to deal with collections. Collection agencies have business agreements with the bureaus. The practice of pay to delete violates the terms of their contract and could be cause for bureaus to refuse to do business with them. Collection agencies for the most part aren't going to risk their business for you. There are some slimy smaller agencies that will do it, but just be aware it's not a legitimate business practice so don't be surprised when you get "no" for an answer. Also, if they take your money and then don't delete, you have very little recourse. The bureaus won't be sympathetic since the collection actually should be there until it ages and falls off.
What you CAN do is contact the original creditor. Sometimes with medical bills, utilities, cell phone companies, and other smallish creditors they will sell debt to collection agencies on a contingency, so if you pay the debt they both get money, and the account is removed from collections so you don't have that bad mark in the first place. You may still be able to make a payment arrangement; I don't know. Doesn' t hurt to check.

Paying the debt off with a loan could do almost as much damage to your credit as the collection. You don't want a brand-new loan when you're trying to get a mortgage.

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I understand your frustration, I certainly don't want to trivialize your dilemma. I am just asking questions trying to find out bit more about the situation. You would need to look back at how was the pre-approval process? Was it pretty simple, quick process or they dig pretty deep into your financial/credit/employment background? I don't think when comes to mortgage, lenders would just take a quick peek your credit report and says yes you are pre-approved. What kind/type of lander is it? are they associated with the builders? Or you seek out that lender on your own... Some pre-approvals could be no more than a marketing schemes or schemes of some kind, especially when you need to fork out money before the loan is finalized.

Reply by
mdkco

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Thanks for replying.  The pre approval process was fairly easy.  They pulled my credit, and asked me a lot of questions.  My job time is over 3 years and over 20 years in the same field.  I'm a W-2 employee.  It is the builder's preferred lender.

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JohnnyRain127

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So they absolutely known about your overall financials, then the pre-approval should be as solid as it comes. I am not sure what you can do at this point. Have you talk to someone higher ups form that lender or its underwriters?

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mdkco

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The only thing they needed was my paystubs and w-2's, and they matched exactly with what I had submitted to them.  I will try to talk to someone higher up tomorrow.  Thanks

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A collection is a collection, so yes, this will cause problems. Is it a debt that you may be able to pay off? If so, do some reading on "pay for delete agreements". If you can't afford to pay it off, you may consider looking for a very lenient lender, but it would be very difficult. You may need to put the plans off for a while until you get things squared away. If you already paid the builder money, you should review all contracts that you signed with them and hopefully you can get your money back with a simple request, you should be able to get most of it if not all back if no work was done or material delivered, if that all turns into a mess you may need to consult with an attorney. There are probably other routes around your problem, you will have to do some extensive reading and a lot of thinking about how to proceed. I don't know the amounts of the collections, but I know medical debt can be very high sometimes. (is there anything that you can sell to pay the debts? Do you have equity in your auto that you can sell to pay the debts and buy a beater car? Can you sell things laying around that you don't need? Can you get a second job or overtime at your current job? Could you qualify for a loan from a consumer finance company to pay the medical debt off? Can you go a different route on the home, did you buy the land already, can you put a cheap single wide mobile home on it for now until you are in the position to build? etc.

Reply by
mdkco

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The medical debt is just under $9k from 5 and 6 years ago.  So the lender can have my information and pull my credit, then issue the pre approval, then deny the loan?  How can they issue a pre approval with the medical collections already there?  Thanks for your response

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