Credit Repair During The Mortgage Process

Credit Repair During The Mortgage Process

Mortgage Borrowers Should Know The Impact Of Credit Repair During The Mortgage Process

The mission of Gustan Cho Associates is to help home buyers and homeowners secure home loans with bad credit.  Many home buyers and homeowners do not realize that they can qualify for a home loan with prior bad credit as well as lower credit scores and do not necessarily need to hire expensive credit repair companies or attorneys.  Before going about repairing your credit by hiring a credit repair company, please contact Gustan Cho Associates for a no cost, no obligation credit analysis.

How Does Credit Repair Work

Credit Repair During The Mortgage Process:

Credit Repair during the mortgage process is disputing negative and/or incorrect information by disputing it to creditors and/collection agencies.  Credit Repair is extremely effective if you can provide documentation that the information that the credit reporting companies are reporting is incorrect.  However, trying to remove an actual correct item that is reporting as a derogatory item on your credit report can be somewhat challenging.  How credit repair works is when you dispute a derogatory item to the credit reporting agencies stating that the item is incorrect or does not belong to you.  The credit bureaus then notifies the actual creditor and the creditor has 30 days to report back to the credit reporting agencies with proof that the item reported is correct.  If the creditor does not respond back in 30 days, the credit bureaus need to remove and delete the derogatory information off your credit report.

Can I Qualify For Mortgage With Bad Credit?

Many times credit repair is not necessary when it comes to qualifying for a mortgage loan. Credit scores are extremely important and you need to meet the minimum credit score requirements to qualify for certain mortgage loan programs.  For example, you need a minimum of a 580 FICO credit score to qualify for a 3.5% down payment FHA home purchase loan.  You need at least a 620 FICO credit score to qualify for a conventional loan.  You can have unpaid outstanding collections and charge offs and previous bad credit and still qualify for a mortgage loan.  You do not have to pay off your outstanding unpaid collection balances.  Never pay off an old collection account unless it is a pay for delete agreement.  If you pay off an older collection account, the credit reporting agencies will update your date of last activity, also known as DLA and the update will trigger your credit report as a new collection account and it will not just lower your credit scores but will set a new statute of limitations on the outstanding collection account.

How Are Collection Accounts Treated When Qualifying For FHA Loans?

There are three different categories of collection accounts and non-medical collection accounts can affect the debt to income ratios of the borrower with FHA Loans.

Here are the three types of collection and derogatory accounts:

  1. Non-Medical Collection Accounts
  2. Medical Collection Accounts
  3. Charge Off Accounts

FHA Guidelines On Outstanding Medical Collection Accounts

Medical collections do not count no matter how much the unpaid balance is and has no impact in the calculations of the borrower’s debt to income ratios .  This rule is are FHA Guidelines and FHA does not have a problem on the amount of the outstanding medical collection account balance. However, many FHA mortgage lenders may have lender overlays where they may require all collection accounts to be paid off regardless whether they are medical collection accounts or non-medical collection accounts. Some FHA mortgage lenders will have a cap on the maximum collection account balance a borrower may have such as no more than $5,000 or sometimes even less.

FHA Guidelines On Outstanding Non-Medical Collection Accounts

With non-medical collections, 5% of the unpaid balance will be counted towards your monthly expenses even though you do not have to pay for it and that is used in calculating your debt to income ratios.  This rule only applies if the borrower has a total of $2,000 or more in outstanding unpaid collection accounts. Any outstanding non-medical unpaid collection accounts with balances under $2,000 is exempt from this rule. Many times, a borrower may have a substantial outstanding non-medical collection account and the 5% of the outstanding unpaid collection account may disqualify them from qualifying for a FHA Loan because the monthly debt payment used may be a substantial amount. On cases like these, the borrower can enter into a written payment agreement with the creditor and/or collection agency and whatever figure that is agreed upon by both parties, that number will be used as a monthly debt payment in the calculations of the debt to income ratios. There is no seasoning requirements on this rule and the day that the written repayment agreement is executed is the day that this will go into effect.

Derogatory Items On Your Credit Report

The older the derogatory item is, the less impact the derogatory item has on your credit report.  Derogatory credit items will stay on your credit report for 7 years with the exception of bankruptcies which will remain on your credit report for 10 years.  If you have derogatory items with zero balances or charged off accounts, and they are more than 2 years old, it will not impact your credit scores and hiring a credit repair company is a waste of money.  A bankruptcy and foreclosure that is older than 2 years old will have little to no impact on your credit scores as long as you have positive re-established credit.  There are many cases where a consumer has filed bankruptcy and/or had a foreclosure and have credit scores of over 700 FICO one year after their bankruptcy and/or foreclosure because they have re-established their credit. Nothing is wrong to have a credit repair work on repairing your credit but there can be issues when your hire a credit repair company do credit repair during the mortgage process which we will discuss later on this article.

Secured Credit Cards Are The Best Tools Of Re-Establishing Your Credit

Borrowers who have recently filed bankruptcy, had a foreclosure, had a deed in lieu of foreclosure, had a short sale, or had a bunch of late payments due to a loss of job or other extenuating circumstances and are in better financial shape now, the best way of re-establishing your credit is by adding positive credit by getting several secured credit cards.

  • Secured credit cards are like regular unsecured credit cards except that applicants need to put down a deposit with the secured credit card company and the secured credit card company will grant a credit limit equal to the deposit that you have given them. 
  • Each secured credit card should be able to boost your credit scores by at least 20 or more points. 
  • As time goes by, your credit scores will improve and your past derogatory credit items will have more of a lesser impact. 
  • Three secured credit cards will greatly improve your credit. 
  • There are countless of folks who have filed bankruptcy or foreclosure who have credit scores north of 700 FICO plus just one year after getting 3 to 5 secured credit cards. 
  • Instead of spending money on credit repair, get secured credit cards.

Times Where Credit Repair During The Mortgage Process Is Needed

There are times where The Gustan Cho Team @ Gustan Cho Associates will recommend credit repair during the mortgage process. Folks who have dozens of derogatory credit may benefit by hiring a professional credit repair company.  Due your due diligence when hiring a credit repair company.  If you are seeking a home loan but have low credit scores or a lot of collection accounts, contact Gustan Cho Associates or call 262-716-8151.  You can also email Gustan Cho at GCho@GustanCho.com .

Credit Disputes During Mortgage Process

You cannot have credit disputes during mortgage process on non-medical collection accounts with outstanding collection balances that you have outstanding unpaid balances that is greater than $1,000 or your mortgage file will be placed under suspense. You are not allowed to have any credit disputes on any outstanding non-medical collection accounts with a total collection balances that is greater than $1,000 or any charge off accounts. Credit disputes under $1,000 or credit disputes that are non-medical collection accounts with zero balances are alright for you to have credit disputes. You are allowed to have credit disputes on medical collection accounts with outstanding unpaid balances and that will not need to be retracted.

Removing Credit Disputes During Mortgage Process

Removing credit disputes during the mortgage process can sometimes be difficult because many creditors realize that your are trying to retract those credit disputes because you are applying for a mortgage loan. If you need a reputable credit repair consultant to help you with credit repair and/or retract the credit disputes during your mortgage approval process, please do not hesitate to contact Gustan Cho of The Gustan Cho Team @ Gustan Cho Associates. Under no circumstances are any members at The Gustan Cho Team @ Gustan Cho Associates affiliated and/or associated with any credit repair companies nor are any kickbacks or referral fees permitted in no way, shape, or form.

Late Payments After Bankruptcy And Foreclosures

Almost all mortgage lenders will not approve any mortgage borrowers who had a late payment or late payments after a bankruptcy or foreclosure for any type of mortgage loan. This is when credit repair comes in handy where the professional credit repair consultant can roll up their sleeves and wheel and deal for you. There are some of the best credit repair consultants in the industry where they can really go to bat for you and get the job done. A good letter of explanation and a strong written agreement between you and the home seller may come to a compromise where it will be a win win situation where the mortgage loan borrower can become your lifelong friend and take care and solve the situation.

DISCLAIMER: Gustan Cho Associates nor any of its subsidiaries has no affiliation with any credit repair companies nor does it approve or disapprove with any credit repair companies. All licensed loan officers and support staff at Gustan Cho Associates and its affiliates and/or subsidiaries cannot accept any monies and/or favors for referring clients to any credit repair companies nor referring them to any of our borrowers. All loan officers who refers  borrowers to a credit repair company are doing so due to the fact that they have had positive experiences with the credit repair company in question but again, Gustan Cho Associates has no ties, affiliation, nor affiliate business agreement with any credit repair companies nor credit repair consultants.