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Delinquent Utility Bill and Mortgage

Mark Cappel
UpdatedAug 20, 2009

I found I had a utility collection on my credit report and paid it off immediately. Can I still get a home mortgage?

About a year and half ago I found out I had a utility collection on my credit report. I paid it as soon as I found out about it. Me and my husband want to purchase a home in the next year and I am worried that the "paid collection" will hurt us. My FICO score is 673. I have disputed the information because nobody had contacted me about this and it was sent to the wrong address. Do you think I will be able to get another home mortgage with my husband?

if it has been a year and a half since you have paid on the account, then the negative effects of that utility account would have decreased substantially. there is nothing you can do about it showing up on your credit report, as it will for up to 7½ years. i do not think this should affect your chances of getting approved for a mortgage, but i do have to state that different lenders will have their own proprietary system of loan approvals. look at it this way, it is not a major default such as a credit card or a car loan. that being said, i can give you some general tips when it comes to applying for mortgages.

before you buy a home, it is crucial you weigh how you can afford to pay for it. you do no’t want to waste time or money by bidding on a house that you cannot afford or by applying for a loan that is beyond your means to pay month after month and year after year. figuring out your budget for your home will make it easier to get the right loan and also to know what changes you may need to make to your finances and your credit profile.

as a standard rule, you are advised to buy a house worth no more than three times your gross household income. use this figure if you have some other debts, such as student loans, car payments, or sizable credit card balances. if you have no other debts, you likely can afford a house that costs as much as five times your annual household income.

when potential lenders review your ability to qualify you for a home loan, they are going to pay close attention to your debt-to-income ratio (dti). to determine your dti, start by computing your total net monthly income. this includes your monthly wages and any overtime, commissions or bonuses that are guaranteed. include any pension or monies that come from alimony or child support, if applicable. if your income varies month-to-month, calculate your monthly average over the past 2 years. don’'t forget to include any other monies earned, whether from rentals or any other additional income.

to determine your monthly debt obligations, make sure to include all of your credit card bills, any loans, such as automobile, student, or personal and the amount of the new mortgage payment in the loan that you will apply for. make sure to include your monthly rent payments if you rent. when you are adding up your credit card obligations, use the minimum required monthly payment. divide your total monthly debt obligations by your total monthly income. this is your total debt-to-income ratio. the lower your dti, the better. a high dti can prevent you from getting the loan. it also can be a warning sign that even a loan that you qualify for could be a serious burden to make each month.

most lenders traditionally will qualify you for the loan with a dti of 28% to 44% of your monthly income. in other words, if your monthly income is $4,000, the lender would ordinarily want you to pay no more than $1,760 (.44 x $4,000) toward all your debts. some sub-prime lenders will allow borrowers to have dti ratios as high as 55%.

you may have compensating factors that will allow you to qualify for the loan, even with a less than desirable dti. for instance, if you have an excellent credit record, a lender might allow you to go more deeply into debt. just how high a dti you can have and still qualify for the loan will depend on such factors as the amount of your down payment, the interest rate on your new mortgage, your credit history and score, and how much other debt you are carrying. mortgage calculators will help you quickly determine monthly payments on different size mortgages so you can learn how much house you can afford. all calculators are not created equal -- but all of them are free. investigate different scenarios, so you can see how the amount of down payment, the length of the loan term, and the interest rates will affect the size of the monthly payment. makes it easy to compare mortgage offers and loan types. visit the mortgage loan form page and find a loan that meets your needs.

i hope this information helps you find. learn & save.