Collections on your credit report are easy to forget about, until they show up at the worst possible moment. Here’s why you need to settle old collections before you get approved for a mortgage and buy a home.
Watch my video or read on for more details:
Are Collections a Problem for my Mortgage?
A client came to me recently after making an offer on a home. Everything looked good until the lender pulled her credit and found an old collection from a cable company. The amount was only $360. The collection was years old. But the lender required proof that it had been paid before they would move forward with the approval.
Getting that proof turned into a problem for my mortgage client. The cable company wouldn’t provide a release letter. In the end, she had to dig through old bank statements to find the original payment, not exactly what you want to be doing in the middle of a home purchase, especially in Edmonton’s busy market with multiple offer situations.
It worked out in the end, but it added stress and delay that could have been avoided entirely.
What Causes Collections
Collections show up for all kinds of reasons: cable and internet providers, cell phone companies, gym memberships, medical bills. Sometimes people don’t even know a collection exists until it shows up on a credit check. A move, a billing dispute, or a missed final payment can result in a collection being registered without the person ever receiving proper notice.
What to Do Before Buying a Home?
The best time to deal with collections is before you make an offer, not during the approval process. Here’s what that may look like for you:
- Pull your credit report and review it carefully
- Identify any collections, no matter how old or how small
- Contact the creditor and request a release or paid-in-full letter
- Keep documentation of any payments made
If a creditor won’t cooperate, bank statements showing the payment can sometimes serve as an alternative, but it’s a backup plan, not a first choice.
The Bigger Picture for your Mortgage
A mortgage approval involves a lot of moving parts. Collections are one of the things that are completely within your control to fix ahead of time. A few phone calls now can save you a lot of stress later!
Whether you are preparing to buy your first home or your fifth, if you’re looking to get pre-approved for a mortgage in Edmonton, fill out my online application. I’m here to help you every step of the way.
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’m trusted partner who will help you get the right mortgage for your home or investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.
