Updated 2016 FHA Guidelines On Credit Disputes

2016 FHA Guidelines On Credit Disputes During Mortgage Process

2016 FHA Guidelines On Credit Disputes During Mortgage Process requires that all credit disputes that are non-medical collection accounts with outstanding balances ( total outstanding aggregate outstanding balances of $2,000 or greater ) of $2,000 or greater need to be retracted prior to the mortgage application and approval process. FHA is the most popular mortgage loan program in this country and has the most lenient and lax mortgage lending guidelines than any other mortgage loan programs. FHA Loans are excellent mortgage loans for first time home buyers and home buyers with credit issues looking for home loan with bad credit or borrowers with high debt to income ratios. FHA does not require mortgage loan borrowers to pay off outstanding collection accounts in order to qualify for FHA Loans. You can qualify for FHA Loans without having to pay off outstanding collection accounts with balances and charge off accounts without having to settle with them. However, 2016 FHA Guidelines On Credit Disputes during mortgage loan application and mortgage loan approval process defines rules and regulations with regards to credit disputes.

2016 FHA Guidelines On Credit Disputes That Are Exempt

2016 FHA Guidelines On Credit Disputes exempts certain types of credit disputes. You can have credit disputes on medical collection accounts with outstanding balances. You can also have credit disputes on non-medical collection accounts that have zero balances. FHA allows credit disputes on all non-medical collection account credit disputes that have aggregate outstanding collection balances of under $1,000. As long as the total outstanding balances on your credit report does not exceed $1,000, then you are allowed to have credit disputes on non-medical outstanding collection balances without having them to be retracted.

FHA exempts medical collections and charge off accounts to be excluded from debt to income calculations. However, you cannot have any credit disputes on charge off accounts. All credit disputes on charge off accounts needs to be removed in order for the mortgage process to proceed.

As mentioned earlier, FHA does not require for outstanding collection accounts to be paid off. Medical collection accounts and charge off accounts are exempt from debt to income calculations. However, if you have more than $2,000 of outstanding collection account balances on your credit report, FHA requires that 5% of the outstanding collection balances to be used in debt to income calculations. You do not have to pay anything every month, but they require mortgage underwriters to take 5% of the unpaid outstanding collection balance on non-medical collection accounts as a monthly paper debt and will be used in debt to income ratio calculations.

Review Credit Disputes Prior To Pre-Approval

This message is mainly to mortgage loan originators who issue pre-approval letters to home buyers. I have seen so many home buyers who were issued pre-approval letter by mortgage loan officers without the loan officer reviewing the borrower’s credit report. The pre-approval phase is the most important stage of the mortgage loan application process .  A mortgage loan originator who issues a pre-approval letter without thoroughly reviewing the mortgage loan borrower’s two years tax returns, two years W-2s, 30 days paycheck stubs, credit scores, and credit report can create a lot of havoc to not just the home buyers but the home sellers and everyone involved in the mortgage process. Unfortunately, many mortgage loan originators only take the borrower’s word on their income and pull credit and just look at the borrower’s credit score to see if they meet the minimum credit score requirements to qualify for home loan . However, mortgage loan originators need to carefully examine the mortgage borrower’s credit report and see if there are any credit disputes and if there are credit disputes that need to be retracted, they need to get this done prior to issuing a pre-approval letter. Many loan officers just issue pre-approval letters and think that it will be alright for them to start the credit dispute retraction process at a later date after the home buyer gets an executed real estate purchase contract. This is the worst mistake mortgage loan officers can ever make. One thing loan officers need to realize is that once a consumer retracts a credit dispute, their credit scores will drop. So, for example, if a borrower was issued a pre-approval letter with a 580 FICO credit score and has credit disputes on his or her credit report, retracting those credit disputes will drop their credit scores and will most likely drop it below 580 FICO credit scores. FHA minimum credit score requirements to qualify for a 3.5% down payment home purchase FHA Loan is 580 FICO so the borrower will not qualify for a 3.5% down payment FHA Loan if the credit scores drop below 580 FICO. I get calls by mortgage loan borrowers all the time because they are upset with their mortgage loan originators who got them pre-approved and got an executed real estate purchase contract and now no longer qualify.

If your mortgage loan officer made a mistake and issued a pre-approval letter when you have credit disputes and now no longer qualify because your credit disputes retraction lowered your credit score, please contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to answer all of your questions.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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