Getting a mortgage after being late on a few payments in the past year depends on a lot of things, like the lender’s requirements, how bad your late payments were, and how good your credit history is overall.
Some recent late payments won’t hurt your credit score, so you might still be able to get a mortgage loan. However, you probably won’t get the best rates and terms.
Buying a house is an exciting event, but it can be hard to get through the process if you have bad credit. A lot of people who want to buy a house wonder, “Can I buy a house if I have collections or accounts that are past due on my credit report?”
It’s true that you can buy a house with collections and past-due bills. But it might change the kind of mortgage you can get. When lenders decide if to give you a mortgage, they will look at your full credit report, your debt-to-income ratio, and other things.
In this comprehensive guide, we’ll explain how delinquent accounts and collections affect mortgage eligibility. You’ll learn
- How lenders view delinquencies and collections
- Strategies for qualifying with less-than-perfect credit
- Tips to improve your chances of approval
- Programs that help borrowers with credit issues
It’s possible to buy a house even if you have past-due bills on your credit report. Read on to find out how.
How Mortgage Lenders View Delinquencies and Collections
Companies that lend money to people want to buy homes will get copies of your credit report from the three main credit bureaus, which are Experian, Equifax, and TransUnion. When they look at your credit report, they look for any red flags, such as:
- Late payments
- Collections
- Charge-offs
- Bankruptcies
- Foreclosures
Recent late payments and delinquent accounts are especially concerning. This shows the lender you may have trouble managing debt and making payments on time.
Lenders also calculate your debt-to-income (DTI) ratio. DTI compares your total monthly debt payments to your gross monthly income. Most conventional lenders want your DTI to be below 43%. A high DTI along with delinquencies or collections further hurts your chances.
How Delinquencies Affect Mortgage Eligibility
Delinquent accounts are those 30, 60, or 90+ days late. Here’s how different levels of delinquency may impact your mortgage application:
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30 days late – A few 30-day lates likely won’t kill your chances. But if your DTI is already borderline, it could tip the scales to a denial.
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60 days late – Multiple 60-day lates will raise red flags with most lenders. Expect a higher interest rate and potentially larger down payment.
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90+ days late – Serious delinquencies make approval very difficult. The lender will see you as a high default risk.
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Past mortgage delinquencies – Late payments on a previous mortgage are especially problematic. The lender will doubt your ability to repay the new home loan.
The more recent and frequent your late payments, the harder it will be to qualify for a competitive mortgage.
How Collection Accounts Affect Mortgage Eligibility
Collections occur when you fall behind with creditors. After several months, the creditor writes off the unpaid balance and sells it to a collection agency. The collection account then appears on your credit report.
Many conventional lenders allow up to $2,000 in collections and still approve your mortgage application. However, they may require you to pay off the collections first. Medical collections tend to be viewed more leniently than other types.
Strategies for Qualifying for a Mortgage with Delinquent Accounts
Just because you have some dings on your credit doesn’t mean homeownership is out of reach. Here are some tips for qualifying for a mortgage, even with less-than-stellar credit:
1. Pay down account balances – Reducing credit card and other debt balances can quickly improve your DTI and offset credit report negatives. Paying down accounts also shows lenders you’re committed to fixing your finances.
2. Pay off collections – Many lenders require you to pay off collections before closing on your mortgage. Paying collections won’t remove them from your credit reports, but it shows lenders you’ve addressed outstanding debts.
3. Add a co-signer – Adding a co-signer with excellent credit can help you qualify and get better mortgage rates. Just be sure the co-signer understands they’ll be equally responsible for repaying the mortgage.
4. Make a larger down payment – Putting down 20% or more shows lenders you’re financially committed to the home purchase. A larger down payment can help offset credit issues.
5. Know your numbers – Review your credit reports and have recent copies on hand when applying for a mortgage. Being upfront about any issues can also help your case.
With the right strategy, there are ways to qualify for a mortgage and realize your homeownership dreams, even with credit challenges.
Tips for Improving Your Mortgage Eligibility
In addition to quick-fix strategies, you may want to take longer-term steps to improve your credit and mortgage eligibility:
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Pay all bills on time – On-time payments can significantly boost your credit scores within a few months.
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Pay down balances – Lower credit utilization also improves your scores. Try to keep balances below 30% of the credit limit on each card.
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Avoid new credit – Don’t open new accounts leading up to your mortgage application. Too many new accounts can lower your scores.
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Monitor credit reports – Order free annual credit reports and dispute any errors with the credit bureaus. This can remove inaccurate negatives dragging down your scores.
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Write goodwill letters – Write to your creditors asking them to remove late payments from your credit reports. If you have a good history with them, they may oblige.
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Wait to apply – If your credit is poor, waiting 6-12 months gives you time to improve it before applying for a mortgage.
With diligence and patience, you can raise your credit scores and improve your mortgage eligibility over time.
Mortgage Programs for Borrowers with Credit Issues
If you have extensive credit problems, special mortgage programs through government agencies and non-profit organizations can help you qualify.
FHA loans – Offered by the Federal Housing Administration, FHA loans only require a 580 credit score. They allow higher DTIs and are more forgiving of past credit issues.
VA loans – VA loans help eligible military members, veterans, and surviving spouses buy a home with no down payment required. Credit requirements are also less stringent than conventional mortgages.
USDA loans – For low to moderate-income homebuyers in rural areas, USDA loans offer 100% financing and flexible credit guidelines.
Non-profit programs – Organizations like Habitat for Humanity offer mortgages and down payment assistance for lower-income buyers unable to qualify elsewhere.
Check if you may be eligible for these special programs if your credit is holding you back from a conventional mortgage.
The Bottom Line – You Can Buy a Home with Delinquent Accounts
Imperfect credit doesn’t have to stop you from achieving your homeownership dreams. While delinquencies and collections can impact the type of mortgage you qualify for, options are available even if your credit isn’t pristine.
With flexible programs, a solid strategy, and diligent credit improvement, you can still buy a house with delinquent accounts on your credit report. Don’t get discouraged – take control of your credit, explore your options, and start turning your homeownership goals into reality.
Qualifying for a Mortgage After Delinquency
The most important part of your credit score is how you’ve paid your bills in the past, and the most recent payments have the most weight. If you’ve been late on payments in the past year, lenders may offer you higher mortgage interest rates. This will make your monthly payments more expensive. That higher interest rate could cost you thousands of dollars over the life of the loan.
You may also be required to make a larger down payment. Take these things into account when deciding if now is the best time to apply for a mortgage or if it would be better to wait until your credit scores have had more time to improve.
How to Increase Your Credit Score
If you are planning to apply for a mortgage in the near future, focus on getting your credit in the best shape possible beforehand. Here are five steps to take to improve your credit before you apply for a new loan:
- Review your credit reports. Know whats in your credit history. There are three national credit bureaus: Experian, TransUnion, and Equifax. Each week, you can order a free copy of your credit report at www. annualcreditreport. com. You can also get a free copy of your Experian credit report at any time.
- Check your credit score. You can order your Experian credit score for free online. Keep a close eye on the risk factors that come with your score. These things can help you figure out what’s lowing your score and what you can do to raise it.
- Bring any past-due accounts current. If you are behind on any payments, make them before you apply for a home loan. Past-due accounts will seriously hurt your credit score.
- Pay down credit card balances. Your payment history is the most important part of your credit score. Your credit utilization rate, or how much of your available credit you are using, is the second most important part. To keep your credit score high, you want your utilization rate to be below 30%. For the best scores, keep it below 6%.
Although it may take time and effort for your credit scores to recover fully, try not to be discouraged by those past late payments. If you make all your payments on time going forward and keep your credit card balances low, you will demonstrate to potential lenders that you are now able to manage credit responsibly, and your credit scores will begin to reflect that.
Jennifer White, Consumer Education Specialist
Can I buy a house with collections on my credit report? Ricardo Mendiola Realtor & Credit Expert
FAQ
Can you buy a house with a late payment on your credit?
You can still buy a house even if you have credit card debt, but your lender may charge you a higher mortgage rate or ask for a bigger down payment. Apr 25, 2025.
Can you get a loan with a delinquent account?
Yes, it is possible to get a loan even if your account is past due, but it will probably be harder and cost more. Lenders consider various factors when evaluating loan applications, and a delinquency can negatively impact your credit score and history.
Can I get a mortgage with unpaid collections?
Yes, it’s possible to get a mortgage with unpaid collections, but it depends on several factors. Lenders will look at the type and amount of debt you have, whether you’re making payments, and how it affects your debt-to-income ratio as a whole.
Can I buy a house with $10,000 in credit card debt?
You can buy a house with credit card debt. However, they will want the minimum payment amount for each debt. Then they will look at your income per month and determine your debt to income ratio. If it’s over a specific threshold it could make it harder. I would focus on paying off as much debt as you can first.