Credit Disputes During The Mortgage Loan Process
This article will cover the mortgage guidelines for credit disputes during the mortgage loan process. Credit disputes during the mortgage process are not allowed on non-medical collections and derogatory credit tradelines. The reason for credit disputes from consumers is to dispute derogatory credit tradelines in the hopes of getting them removed by the credit bureaus.
Certain types of credit disputes are exempt from being removed. Medical collections, non-medical collection accounts with zero balance, credit disputes on credit tradelines that are two years old from the date of last activity (DLA), and non-medical credit disputes that the total aggregate outstanding balances is less than $1,000.
It is best recommended not to go through any credit repair regimen during the mortgage loan application process. If you get an approve/eligible per automated underwriting system with credit disputes, the mortgage process can proceed if the file is downgraded to a manual underwrite. Only FHA and VA loans allow manual underwrites. Consumers who have bad credit and need to repair credit normally go about disputing derogatory credit items to the three major credit reporting agencies;
In the following paragraphs, we will cover the mortgage guidelines on credit disputes during the mortgage loan process.
How Does Credit Repair Work
Consumers need to write credit dispute letters to the credit reporting agencies requesting that to investigate derogatory tradelines. Credit reporting agencies have 30 days to notify the creditor and get verification on the disputed item. If the creditor does not respond or come back with validation, the credit dispute is considered valid. The credit bureaus need to delete them from the consumer credit report.
How Consumers Dispute Credit To Credit Bureaus
Disputing a derogatory credit tradeline is a process that takes time. If you have solid documentation proving the negative credit tradeline is an error or does not belong to you, the credit bureaus normally remove the error and updates your credit report. However, most consumers dispute negative credit tradelines and state that it does not belong to them without any supporting documentation. Without supporting docs, it is difficult getting derogatory credit tradelines removed. The credit dispute process with the credit bureaus normally takes 60 or more days if consumers do it.
Lenders can do a rapid rescore where it takes three to five days. To do a rapid rescore, the loan officer needs proof that the credit tradeline is wrong. It gets updated in no longer than 5 days. In the event, if credit reporting agencies do not remove derogatory information after the original credit dispute the first time, consumers can re-dispute negative credit items.
Credit disputes with the credit bureaus is done by sending them follow up credit dispute letters hoping the credit reporting agencies will eventually remove them. Removing negative credit items will clean up a credit report and can potentially improve credit scores.
Mortgage Application Process With Active Credit Disputes on Credit Report
Borrowers with prior bankruptcies and foreclosures can qualify for mortgage loans. FHA loans are the most popular loan program for borrowers with less-than-perfect credit and higher debt-to-income ratios.
Homebuyers can qualify for FHA loans two years after a Chapter 7 Bankruptcy discharge date. Buyers can qualify for FHA loans one year into a Chapter 13 Bankruptcy repayment plan with Trustee Approval.
Homebuyers can qualify for FHA loans with no waiting period after a Chapter 13 Bankruptcy discharg date. For homebuyers with a foreclosure, short sale, or deed in lieu, there is a mandatory waiting period of 3 years from the official date of the foreclosure to qualify for FHA loans.
Rebuilding Credit After Bankruptcy Versus Credit Disputes
The first thing most consumers want to do after getting a bankruptcy discharge is hiring a credit repair company to delete prior derogatory credit tradelines that were included in bankruptcy. Credit repair after bankruptcy discharge is not recommended. Deleting credit tradelines prior to bankruptcy will do absolutely nothing to boost your credit score or get you a mortgage.
Rebuilding credit with new credit is key in rebuilding credit after bankruptcy. For folks who have just filed bankruptcy and/or foreclosure, it is strongly recommended that they start repairing their credit and start rebuilding their credit scores.
When their waiting period is up, they can qualify for a residential mortgage loan. Repairing credit involves credit disputes with credit reporting agencies. However, if the waiting period is almost over and mortgage applicants intend on getting a mortgage, they cannot have any pending credit disputes on non-medical collections and charge off accounts.
What Happens To Mortgage Loan Applications If There Are Credit Disputes?
Lenders will suspend a mortgage file if there are active credit disputes on non-medical collections, charged-off accounts, and derogatory credit tradelines. Retracting credit disputes will drop credit scores. The reason for the credit score drop is because whenever someone disputes a credit tradeline, the credit bureaus will automatically discount the disputed item from the credit scoring model. Many folks do not realize this and ruin their plans.
Guidelines on Credit Disputes During Mortgage Process
Credit Disputes And Mortgage Process do not go hand in hand. Mortgage Applicants where they are nearing the mandatory waiting period are a month or two away and are planning on applying for a mortgage, they need to make sure that there are no active credit disputes pending on the credit report.
Mortgage Loan Applicants who still have credit disputes and are ready to apply for a mortgage loan need to retract credit disputes before starting the mortgage application process.
Loan Officers can assist borrowers. For consumers who have hired a credit repair company, credit repair companies can do more damage than good during the mortgage process. There are many instances where creditors will not cooperate with consumers and not remove credit disputes. Retracting credit disputes can possibly drop credit scores, so keep that in mind also if credit scores are on a borderline cutoff requirement for a specific mortgage program.
Credit Repair During The Mortgage Process
Borrowers do not need credit repair to qualify for a mortgage. Older derogatory credit items do not affect credit scores. Whatever a credit repair company does, consumers can do it themselves. Credit repair can do more damage than good.
Borrowers can qualify for home loans with older derogatory credit tradelines on their credit reports. Mortgage loan applicants need to realize that trying to delete older derogatory credit tradelines does not make an impact on credit scores. Any older derogatory credit tradelines older than 12 months old has little to no credit impact on the borrower’s credit scores.
Lenders do want to see timely payments in the past 12 months. Re-established credit after bankruptcy and/or housing event is a must. Please get in touch with Gustan Cho Associates at 800-900-8569 or text us for a faster response to qualify for home loans with bad credit. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
