This BLOG On Changes In Credit Report During Mortgage Process Was UPDATED On May 14th, 2019
Credit scores and debt to income ratios are what determines whether borrowers qualify for a home loan and the type of loan program borrowers qualify.
- Lenders do not only go by credit scores
- Mortgage underwriters will also review the credit report and thoroughly go over the credit history
- Borrowers can have a good credit score to qualify for a mortgage but special emphasis will be placed on the last 12 months
- Late payments in the past 12 months are taken very seriously
- Multiple late payments in the past 12 months can disqualify borrowers
- One or two late payment on a credit report in the last 12 months may be acceptable
- Need a good letter of explanation with the circumstances on why borrower had one or two late payment in the past 12 months
- Late payments on mortgage payments in the past 12 months is definitely a problem
- Most lenders will not allow any late payments on mortgage payments in the past 12 months
- There are a few lenders that will allow a one time 30-day late payment in the past 12 months
Changes In Credit Report During Mortgage Process With Credit
Once buyers enter into a real estate purchase contract and sign loan package and disclosures the loan process begins. Credit report pulled by loan originator will be used throughout the mortgage process. Credit Score Changes In Credit Report During Mortgage Process does not affect borrowers.
- The credit score on that credit report will be used to qualify for a loan program
- Credit score will be used throughout the whole mortgage approval process until the loan closes
- However, the mortgage underwriter will do a soft credit pull prior to issuing a clear to close
- If credit scores dropped dramatically, it does not matter
- This because the credit score used will be from the credit report that was initially submitted with the signed mortgage application is good for 120 days
- However, if there are changes on credit report, that will be taken into consideration
- For those with higher debt to income ratios, increases on credit card balances may affect their DTI
- They may be asked to pay down the credit card balances
- Have the mortgage processor to do a credit supplement so it reflects on the credit report
- If borrower purchased a new high ticket item such as an automobile or furniture during the mortgage process it will affect DTI
- New monthly debt obligation will get discovered when the underwriter does a soft credit pull
- The monthly obligation will be taken into account for debt to income ratio qualification
What If Old Collection Account Pops Up On Credit Report During Mortgage Approval Process?
There are folks who have gone through credit repair prior to applying for a mortgage. Many derogatory credit items such as collections, late payments, charge offs can be removed and nobody will know.
- There are times when the derogatory credit items re-appear on a consumer’s credit report during the mortgage process
- If a derogatory credit item appears prior to a clear to close is issued during soft credit pull by mortgage underwriter, it can affect the mortgage process
- If the derogatory item that pops up on the credit report is a charge off or collection account with zero balance or an unpaid balance of $1,000 and under, no need not worry
- This because the above are exempt
- If the collection account is a medical collection account with an unsatisfied balance no worries
- Medical collections are exempt
- If a bunch of late payments that are under 12 months old, borrowers will have issues getting an approve/eligible per Automated Underwriting System approval
- The mortgage loan originator will have several options to handle this situation and will work with borrowers
- Mortgage process and clear to close can be delayed until this issue is resolved
- A judgment re-appearing can be a problem
- May have to negotiate a settlement amount with the judgment creditor
- Judgment can be paid at closing with underwriter approval
May 14, 2019 - 3 min read