If you have any outstanding delinquent debts that are being reported on your credit bureau as collections it may or may not affect your ability to purchase a new home. The type of debt and how long ago it occurred will be a couple of the factors the lender will take into consideration when looking at your collections.If your broker is placing you with BC lender, most of the lenders don't care for the medical bills you have on your credit report.
Depending on the lender, you can have collections depending on how old the collection date is and the amount. If the collection was filed over 24 months ago, most subprime lenders disregard those collections. Another factor a lender will look at is the total amount owed in collections. Some lenders will allow you to have collection amounts not exceeding $2000. Government collections however, must always be paid since they can become a lien that attaches to the title of the property.
There are some sub-prime lenders, also known as B/C lenders, who will not care about collections at all when you are buying a home or refinancing your home. Some lenders will allow open collections up to a certain total amount and they can not exceed that amount or they will need to be paid to buy a home. Other lenders will not allow you to buy a home with any collections present at all, even if it was just a $50 medical bill. This is a good reason why it is good to take a look at your credit yourself a few months in advance of obtaining a loan to see what is reporting to your credit report and if there are any items that you need to take care of or have corrected before you begin trying to buy a home and obtain home loan financing. Sometimes you may have old collections that have been paid for showing up on your credit still. It is amazing how many collection companies out there don't have problem reporting collection accounts to the credit bureau as quickly as possible but when you pay off the collection, they don't seem to care about properly reporting the fact the collection was paid to the credit bureau. Therefore, collections can impact the availability of which lenders you can use to finance your new home purchase. No collection accounts can open up a wider variety of programs and lenders for you to choose from while having a lot of collections can really shut the door on the use of many lenders and may require you to obtain a loan with terms that are not as favorable.
Although you can leave collections open and still secure home financing the higher interest rate you will be charged by leaving them open may or may not cost you more over the life of the loan. Talk to your mortgage broker about financing options when open collections are involved.
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