Credit Repair To Qualify For Mortgages And How It Can Backfire

This BLOG On Credit Repair To Qualify For Mortgages And How It Can Backfire Was PUBLISHED On June 9th, 2020

Credit Repair To Qualify For Mortgages
Gustan Cho Associates

Advice On Credit Repair To Qualify For Mortgages

Credit Repair To Qualify For Mortgages is often not necessary for home buyers planning on buying a home:

  • Credit Repair does work
  • Depending on the credit consultant consumers use, derogatory credit tradelines can be removed and deleted off consumer credit reports
  • I have personally seen collection accounts, charge offs, judgments, tax liens, bankruptcies, foreclosures, short sales, and all types of derogatory credit tradelines deleted off a consumer’s credit reports
  • However, lenders will find out about deletions of public records

In this article, we will discuss and cover Credit Repair To Qualify For Mortgages And How It Can Backfire.

Negative Public Records

Example of public records are tradelines such as the following:

  • bankruptcies
  • foreclosures
  • tax liens
  • child support payment delinquencies
  • judgments

Public records are discovered when lenders do a third party national public records search during the QC Underwriting Review Process.

Credit Repair To Qualify For Mortgages: Public Records Deletions

When borrowers apply for a mortgage loan, they need to complete a 4-page mortgage loan application called the 1003 mortgage application.

  • The last page of the 1003 mortgage application, there will be a series of questions that will be asked

Examples of disclosure questions asked on 1003 are questions such as the following:

  • have you filed bankruptcy
  • have you had a short sale
  • any foreclosures, deed in lieu
  • any judgments
  • is applicant a defendant party to a lawsuit

Importance In Answering Questions To Lenders Truthfully

How important it is to answer lenders truthfully

Mortgage applicants need to be truthful when answering these questions

  • Credit Repair does work
  • I have seen countless of consumers who have had public records such as bankruptcies, multiple foreclosures, and multiple judgments deleted off their credit report from all the three credit bureaus
  • Unfortunately, marking that consumer have not filed bankruptcy or had foreclosure but in fact, they deleted off on credit report, lenders will find out during the final stage of the mortgage approval process, which is the QC Underwriting Review Process
  • Once the mortgage loan application is about to get a clear to close or with some companies, after the loan is cleared to close, the file goes to the Quality Control Division of the mortgage company
  • This is where a QC underwriter will contract with a third-party vendor to do a national public records search

The third-party vendors, companies like Lexis Nexis or Data Verify, will do a thorough search of public records at the national level. Any public records on borrowers will show up. All public records deletions from credit repair will show up on public records search. Often times, credit repair to qualify for a mortgage can often do more damage than good for mortgage borrowers.

Why Do Credit Repair To Qualify For Mortgages?

The good news on credit repair is that unpaid collection accounts and charge offs or delinquent accounts that are deleted off the consumer’s credit report will not register on public records and nobody will find out about it.

  • Lenders do not just look at the borrower’s credit scores
  • Lenders will look at the borrower’s overall credit history
  • Consumers do not have to pay off outstanding unpaid collection accounts to qualify for owner occupant home mortgages
  • Home Buyers can qualify for Home Loans with outstanding collection accounts and charge off accounts without having to pay them
  • Medical collection accounts and charge offs are exempt from debt to income ratio calculations
  • Non-Medical collection accounts with an aggregate total outstanding unpaid collection account balance of greater than $2,000, 5% of the outstanding balance is used to calculate the borrower’s debt to income ratio
  • On a $10,000 outstanding unpaid collection account balance, 5% of the $10,000 or $500, will be used as a monthly debt of the borrower
  • This holds true even though the borrower does not need to make any payments
  • By deleting the collection account through credit repair, the 5% calculation of the outstanding debt will no longer apply since it has been removed off the credit report

It needs to be removed by all three credit reporting agencies.

Choosing The Right Credit Repair Company

Like other industries, not all credit repair companies provide the best services.

  • There are hundreds if not thousands of credit repair companies
  • Choosing the right credit repair company can be challenging
  • Do not fall in to fancy websites or ads with fake testimonials
  • The place to start shopping for the best credit repair companies would be to ask for referral by realtors, mortgage brokers, bankers, attorneys, or other professionals who use credit repair services
  • I myself use only one credit repair consultant who has helped hundreds of my borrowers who had less than perfect credit and would refer even my own family
  • Most mortgage brokers work closely with credit repair companies
  • Can ask loan officer who they recommend for credit repair

Credit Repair To Qualify For Mortgages Takes Time

How to repair a loan to qualify for a mortgage takes a long time

Home Buyers who are thinking to start credit repair to qualify for mortgages need to realize that credit repair takes time. Most often times than not, credit repair is not necessary to qualify for mortgages. There are many instances where going through credit repair during the mortgage process can do more damage than good.

  • Mortgage lenders prohibit credit disputes during mortgage process
  • Consumers are allowed to have credit disputes on medical collection accounts with outstanding balances and non-medical collection accounts with zero balances
  • However, borrowers cannot have credit disputes on non-medical collection accounts if the total of the outstanding unpaid collection balances are over $1,000
  • Non-medical collection accounts credit disputes needs to be retracted in order for the mortgage process to proceed

Another major issue with retracting credit disputes with outstanding collection account balances is that once consumers retract the credit disputes, credit scores will drop.

Dangers With Credit Repair To Qualify For Mortgage

The reason why credit disputes during the mortgage process is prohibited is whenever consumers dispute derogatory credit tradelines, the credit bureau credit scoring model will automatically expunge the derogatory tradeline in question from the scoring formula.

  • What this means is that the verbiage credit in dispute: Under Investigation
  • This verbiage automatically triggers the negative points from the scoring formula
  • Credit disputes will often raise consumer credit scores

On the flipside, retracting credit disputes will drop credit scores:

Borrowers who have low credit scores and prior bad credit and need help in qualifying for a mortgage loan, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] We are different than other direct mortgage lenders where we will not tell our borrowers come back in a year after they have improved their credit. Our staff will guide our borrowers and help them in getting their credit to where it needs to be and work with all of our borrowers to make the American Dream Of Home Ownership a reality. There are many times where we help those who want to be homeowners for many months so they can qualify for a home loan and get pre-approved.

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