In this blog, we will cover going through credit repair during FHA loan process. Credit repair can do more damage than good. It is best to talk to a loan officer before you start a program for credit repair during FHA loan process. There are strict mortgage guidelines on credit disputes during the mortgage process. In many instances, credit disputes can backfire on your getting a mortgage loan approved and we will cover that topic in this guide. In the following sections of this guide, we will cover the dos and don’ts of credit repair during FHA loan process.

Do Lenders Look at Credit Disputes During Mortgage Process?

Many people don’t understand how this works. This article is designed to give you some basic information to help those who are ready to purchase a home, especially first-time home buyers. Credit repair is not necessary. Credit repair can often do more damage than good during the mortgage process.

Credit Repair During FHA Loan Process can often delay or disqualify borrowers. With a credit repair regimen, consumers need to realize the impact it can do if they are doing credit repair during FHA Loan Process. In this article, we will discuss and cover Credit Repair During FHA Loan Process Mortgage Guidelines.

How Credit Repair During FHA Loan Process Can Backfire

Whenever you look at the credit report, look at the age of the delinquent accounts. Did you know that if it’s seven-year-old, you can get it removed by yourself?  This depends on what type of account it is and if the original company has sold your accounts to another collection agency. If the original company hasn’t sold your accounts to another company that starts the clock running again, then you can request that the accounts be removed. If this is the case, then the clock starts ticking again.

How Do I Check My Credit Report For Mistakes Before Applying For a Mortgage?

The first step is you need to get a copy of your credit report from all three credit bureaus which are TransUnion, Experian, and Equifax. Next, look at your collections or charge-offs.

Look at the dates reported. If the accounts are seven years, you can write a letter to each credit bureau requesting them to be removed:

Write to:

TransUnion
P.O. Box 6790
Fullerton, CA 92834

Experian
P.O. Box 9530
Allen, TX 75013

Equifax
P.O. Box 740241
Atlanta, GA 30374

Whenever consumers do credit repair, they will be disputing derogatory information. When applying for a mortgage, lenders do not allow credit disputes (there are certain exemptions) during the mortgage process. We will discuss this topic in this blog. Retracting credit disputes often drops credit scores. It is very dangerous and risky to do credit repair during the mortgage process.

How Long Do Public Records Remain on Credit Reports?

A Chapter 7 Bankruptcy remains on your credit report for 10 years after the date filed. A Chapter 13 Bankruptcy remains on your credit report for seven years after the date filed. However, civil judgments remain seven years from the filing date. Under federal law, unpaid tax liens can remain on credit reports indefinitely, though in practice credit bureaus may remove them after a decade or so.

Can Collection Agencies Negotiate Pay For Delete?

(Once paid and released, a tax lien must be removed seven years from the date it was filed.). Did you also know that if you owe for delinquent charges-off or collections, you can negotiate with the companies to take a lesser payoff than what you owe?

All you have to do is call the company and ask them if they will take a lesser pay-off than what is on your credit report. Just because you owe them a certain amount doesn’t mean that you have to pay the full amount.

How Lenders View Medical Collection Accounts on Credit Reports

Now, let’s talk about something that I have been experiencing while talking to borrowers about medical collections. After reviewing the credit report, I call the client to review it with them just to make sure the bureaus are reporting correctly and there are no errors in it.

Do Medical Collection Accounts Affect Getting Mortgage?

There have been some times when the borrower states their insurance company should have paid a medical collection that is being reported. If this is your case, call the insurance company and have the account number ready and once the information is verified, the delinquent account should be removed.

Qualifying For FHA Loans With Collection And Charge Off Accounts

HUD, the parent of FHA, does not require borrowers to pay off outstanding collections and charge off accounts. Borrowers can qualify for FHA Loans with Collections and Charge Off Accounts. Borrowers do not have to pay off outstanding unpaid collections and/or charge-offs.

Many of my borrowers go to their local bank or mortgage company to be told that they do not qualify for an FHA Loan because they have outstanding unsettled collection accounts. Borrowers are often told they do not qualify for an FHA loan until they have paid off the outstanding collection accounts by lenders.

Can You Buy a House If You Have Collection Accounts?

Having outstanding collection accounts is not a disqualifier for getting an FHA loan. If a lender tells borrowers to pay off outstanding collections and charge-off accounts, it is not HUD guidelines. Being told to remove collection accounts and charge-offs is a requirement by the individual lender.

The lender can have their own requirements which are called lender overlays. Overlays on collections and charged-off accounts are when lenders will request that the borrower still pay off outstanding collection accounts. This holds true even though FHA does not require it.

Credit Disputes During Mortgage Loan Process

Borrowers cannot have credit disputes during mortgage on non-medical credit items if the total amount of the outstanding unpaid collection items goes over $1,000 or on any charge-off accounts.

Borrowers can have credit disputes on medical collection accounts or non-medical collection accounts with zero balances. Credit repair during FHA Loan Process where the borrower has active disputes on charge-off accounts is not allowed. Credit disputes on non-medical collections with zero balance are exempt from retraction.

Can You Get a Mortgage With Disputes on Your Credit Reports?

Consumers can have credit disputes on non-medical collections that are at least 24 months old. Consumers can have credit disputes on late payments on revolving accounts as long as the outstanding balance is below $1,000.

If the outstanding balance is over $1,000 on late payment disputes, pay down the balance below $1,000 to have the credit disputes exempt. This way the late payment credit dispute does not have to be retracted.