Does Hiring Credit Repair To Qualify For FHA Loan Work?

This BLOG On Hiring Credit Repair To Qualify For FHA Loan Was Updated On May 15, 2017

FHA Loans are the best loan program for mortgage borrowers with less than perfect credit. FHA Guidelines On Collections And Charge Off Accounts does not require FHA Borrowers to pay off outstanding collections and charge off accounts. Borrowers of FHA Loans can have bad credit and late payments but need to have been timely with all of their monthly debts reporting on credit bureaus for the past 12 months. Credit Repair To Qualify For FHA Loan does work in certain cases but not in other instances where public records are deleted.

Here are situations and case scenarios where credit repair to qualify for FHA Loan works:

  • Deletions of late payments: Late payments on credit reports are not public records and nobody can find out whether or not the late payment tradeline has been removed from credit reports.
  • Collections and charge off accounts: Collection accounts and charge off accounts are not public records so nobody can find out if these items have been removed from credit reports.

Borrowers need to keep several things in mind when Credit Repair To Qualify For FHA Loan .

  • For those who have bad credit and are thinking of Credit Repair To Qualify For FHA Loan because they want to qualify for a mortgage need to consider several important things about credit repair.
  • Deletions of public records such as bankruptcy, foreclosures, judgments are discovered by lenders during third party public records search.
  • Mortgage applicants cannot have credit disputes during mortgage process on non-medical collections and charge off accounts.

Is Credit Repair To Qualify For FHA Loan Recommended?

A credit repair client need to really do research and pick a honest, reputable, reasonable credit repair company that places the client first and the results of their credit repair services before the amount of money they charge.

  • There are many credit repair companies and consumers can never be too careful in choosing the right credit repair company. 
  • Never hire a credit repair company that guarantees that they will remove bankruptcies, foreclosures, judgments, and tax liens because there are no guarantees.  
  • Can public records be deleted?  Yes. 
  • Many consumers who dispute their bankruptcies, judgments, foreclosures, collections, charge offs, and tax liens have them deleted from their credit reports but it is not because the credit repair company has a magic dispute letter formula but it is mainly because of errors or inaccuracies. 
  • Bankruptcies, judgments, tax liens, and foreclosures are public records and can easily be verified electronically and on the majority of the cases it stays on your credit report. 
  • Only a small percentage of those disputes gets the items deleted from your credit bureaus.

Deletions Of Public Records Off Credit Reports

Another important thing home buyers needs to be aware of is that deleting bankruptcy, foreclosure, tax liens, and judgments will not help them in getting a mortgage loan.

  • Deleting those items might help them improve their credit scores but a mortgage loan borrower cannot lie on a mortgage application that they have never filed bankruptcy, had a foreclosure, has or had a tax lien, or has an unsatisfied judgment. 
  • Lenders will do a third party national public records search through Lexis Nexis, Data Verify, or other third party vendors.
  • As the bankruptcies, foreclosure, judgment, and tax lien ages, they will have less and less impact on credit scores as it ages. 
  • Be careful with credit repair companies that want high fees for removal of the above items.
  • Consumers should not be asked for a large payment prior to any services. 
  • If the credit repair company suggests that they want to create a new identity with a new social security number, that is a total scam and you might also be committing a crime so stay away from them.

Credit Repair Takes Time

Remember that repairing your credit will take time.

  • Whether consumers repair credit themselves or hire a credit repair company, it will probably take anywhere between 3 months or longer. 
  • Credit repair takes time and consumers should see improvements on credit scores month after month but no money in the world can repair credit and improve credit scores overnight.

Credit Disputes During Mortgage Process

Credit disputes during mortgage process is not allowed on certain types of derogatory credit tradelines.

Here are FHA Guidelines on Credit Disputes During Mortgage Process:

  • Borrowers cannot have credit disputes on non-medical credit tradelines if the total outstanding unpaid balances is greater than $1,000.
  • Borrowers cannot have any credit disputes on charged off accounts.
  • Borrowers are allowed credit disputes on non-medical collections with zero balances.
  • Borrowers are allowed credit disputes on medical collections.

Reason for credit disputes not being allowed by lenders is because of the following reasons:

  • When a consumer disputes a derogatory credit item, the credit bureaus will automatically take that derogatory credit item off the credit scoring model, therefore, that derogatory item is not counted as a derogatory and the consumer credit scores goes up.
  • When retracting a credit dispute, consumer credit scores will drop because the derogatory credit item is now factored back in to the credit scoring formula.

How Credit Repair To Qualify For FHA Loan Is Helpful For Borrowers With Large Outstanding Collections

Credit Repair can become very helpful for borrowers who have large outstanding collection balances because of the 5% rule. As mentioned earlier on this article, borrowers of FHA Loans can qualify for mortgage without having to pay off outstanding collections and/or charge off accounts. However, FHA has FHA Guidelines On Non-Medical Collection accounts.

Here are the FHA Guidelines On Non-Medical Collection Accounts:

  • FHA requires that lenders take 5% of the outstanding non-medical collection account balance on collections over $2,000 and use it as a monthly debt of the borrower when calculating debt to income ratios.
  • Borrower does not have to pay the 5% of the outstanding collection account balance but that figure is a paper figure that must be calculated.
  • If the 5% of the outstanding non-medical collection account will disqualify the FHA Borrower, then the borrower can enter into a written payment agreement with the collection agency and/or creditor and whatever the figure agreed upon can be used in lieu of the 5%.
  • Charge off accounts and medical collections are exempt from this rule.
  • There is no payment seasoning requirement if borrower enters into a written payment agreement with the creditor and/or collection agency.
  • If borrower gets collection account deleted off credit report through credit repair due to errors or inaccuracies, lenders will not use the 5% in calculation of debt to income ratios since there is no way of finding out.

Deleting derogatory items off credit report is great as long as they are not public records. All public records that is deleted through credit repair such as bankruptcies, judgments, short sale, deed in lieu of foreclosures, foreclosures, government student loans, child support, and any other public records will get discovered when lenders do a national public records search.

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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