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Old Student Loan Default and New Mortgage App


Arynne06
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Getting my things in order so I can apply for a mortgage in NC.

 

Credit is 720-730

 

I have a defaulted student loan (govt). It fell off of my credit report years ago, but since it’s federal, I know it won’t go away.

 

I was offered a settlement amount and am able to pay it, but I want to see how that will affect my credit and/or mortgage apps once I apply (next month or so). It’s not showing on my credit now (it’s like 15 years old). Once I pay, will it show and drop my scores?

 

Should I pay it before applying for the mortgage?

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A defaulted student loan is permitted to report on your credit report 7 years from repayment date.  (This differs from most other debts, which are permitted to report for 7 years after the date of default.)

 

I'm not prepared to speculate whether settling the debt will result in an entry into your credit report for the debt.  I wouldn't expect that a CA would have incentive to report the account once it was PIF.  However, I don't know if the payoff might trigger reporting by the loan guarantor.

 

Since you've been contacted with a settlement offer, I'd worry that if you pushed this off until you closed on a mortgage that the account holder might get antsy and report the default to nudge you closer to repayment.

 

On the other hand, if you settle it now, it's an unknown whether reporting might be triggered.

 

Best I can suggest is speaking with the account holder and explain your situation as well as your concern with sudden renewed reporting of the account.  Hopefully you can tell from their manner whether their giving you a reasonable answer or just blowing it out "..." .  If reasonable, that should give you a decent guidance on what action serves you best.

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On 2/28/2022 at 7:52 AM, Arynne06 said:

Getting my things in order so I can apply for a mortgage in NC.

 

Credit is 720-730

 

I have a defaulted student loan (govt). It fell off of my credit report years ago, but since it’s federal, I know it won’t go away.

 

I was offered a settlement amount and am able to pay it, but I want to see how that will affect my credit and/or mortgage apps once I apply (next month or so). It’s not showing on my credit now (it’s like 15 years old). Once I pay, will it show and drop my scores?

 

Should I pay it before applying for the mortgage?

You do not have to worry about the account suddenly reporting on your credit because it is well past the FCRA time limit.

As far as the mortgage goes, there are a couple of things to consider.

1) There is a specific question in the declarations section that asks if you're currently delinquent or in default on a federal debt. You want to settle the student loan so you can answer no to this question.

2) If you're applying for a government backed loan (FHA, VA, USDA) the student loan will show up in CAIVRS and the lender will require you to resolve it.

You're better off taking care of it prior to applying for a mortgage.

 

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