Whether you can qualify for a mortgage after having a few late payments in the past year depends on several factors, such as the lenders criteria, how delinquent you were and the overall strength of the rest of your credit history.
If you have a strong credit history aside from the recent late payments, you still may be able to obtain a mortgage loan, but you likely wont qualify for the best rates and terms available.
Buying a home is an exciting milestone but it can be stressful navigating the homebuying process with imperfect credit. Many homebuyers wonder – can I buy a house if I have delinquent accounts or collections on my credit report?
The good news is, yes you can buy a house with delinquencies and collections. However, it may impact the type of mortgage you qualify for. Lenders will look at your full credit report, debt-to-income ratio, and other factors when deciding whether to approve your mortgage application.
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
Follow along for everything you need to know to buy a home, even with delinquencies on your credit report.
How Mortgage Lenders View Delinquencies and Collections
When you apply for a mortgage, lenders order a copy of your credit report from the three major credit bureaus – Experian, Equifax, and TransUnion. They review your full credit history, looking for any red flags like:
- 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
Your payment history is the most important factor in your credit scores, and recent payment history has the most impact. Because your late payments happened in the past year, you may find that lenders offer you higher mortgage interest rates, which will in turn increase your monthly payments. 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. Its important to consider these factors when deciding whether its best to apply for a mortgage now, or whether it might be beneficial to wait until your credit scores have had more time to recuperate.
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. You can order a free copy of your credit report weekly from each of the three national credit bureaus (Experian, TransUnion and Equifax) at www.annualcreditreport.com. You can also view your Experian credit report for free at any time.
- Check your credit score. You can order your Experian credit score for free online. Pay close attention to the risk factors provided with your score. These factors can help you understand what is affecting your score the most and what you can do to improve it.
- Bring any past-due accounts current. If you are past due on any account, bring the account up to date before applying for a home loan. Past-due accounts will seriously hurt your credit score.
- Pay down credit card balances. Your credit utilization rate, or amount of available credit youre using, is the second most important factor in calculating your credit scores, right after payment history. While you want a utilization rate below 30% to avoid hurting your credit scores, keep your utilization rate below 6% for the best scores.
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?
Having credit card debt doesn’t disqualify you from buying a house, but your lender may charge you a higher mortgage rate or require a larger down payment.Apr 25, 2025
Can you get a loan with a delinquent account?
Can I get a mortgage with unpaid collections?
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.