Updated FHA Guidelines On Credit Disputes

FHA Guidelines On Credit Disputes Explained

There are strict FHA Guidelines On Credit Disputes for FHA mortgage loan borrowers. Credit Disputes is often used by credit repair companies and consumers going through credit repair . When a consumer wants to remove a derogatory credit item off their credit report whether due to the inaccuracy and/or just to take a chance in having it removed, they will do a credit dispute by writing a letter to the credit bureaus stating to investigating the inaccuracy or validity of the negative credit reporting item. By federal law, the credit bureaus needs to investigate the credit dispute and has 30 days to do its investigation and if the creditor does not validate the credit dispute, then the credit bureaus needs to remove the derogatory item in question off the consumer’s credit report. If the creditor validates and confirms the negative credit reported item, then the derogatory credit item will remain on the consumer’s credit report. Disputing derogatory credit items is done by many consumers trying to repair their credit, however, credit disputes during mortgage process needs to be avoided because it will back fire on the mortgage borrower.

FHA Guidelines On Credit Disputes: What Is Allowed And What Is Not Allowed

FHA Guidelines on credit disputes allows mortgage borrowers to have credit disputes on medical collection accounts with balances. FHA Guidelines on credit disputes allows FHA borrowers to have credit disputes on non-medical collection accounts with zero balances without having to have them retracted. FHA guidelines on credit disputes does not permit credit disputes on charge off accounts. Credit disputes on charge off accounts needs to be retracted and removed in order for the mortgage process to proceed.

You cannot have credit disputes on non-medical collection accounts with unpaid credit balances that is greater than $1,000, which is the total sum of all of your unpaid collection account balances. If you have credit disputes on non-medical collection accounts and the total unpaid outstanding balances that reflect on your credit report is less than $1,000, than you do not have to retract the credit disputes.

Screening Borrowers Prior To Issuing Pre-Approvals

One of the biggest mistakes mortgage loan originators make when issuing pre-approval letters is that they just look at the borrower’s income and credit scores and issue the pre-approval letter.

Mortgage loan officers should carefully review every mortgage loan applicant’s credit report to make sure there are no credit disputes prior to issuing a pre-approval letter. Retracting a credit dispute is not all that simple. There are creditors that will not release a credit dispute and let it linger on where it will cause delays for mortgage borrowers.

Retracting a credit dispute or credit disputes will most definitely drop the consumer’s credit scores once the retraction of the credit disputes is posted on the credit bureaus. This can create a major issue for mortgage borrowers.

Impact In Retracting Credit Disputes

One of the negative impacts in retracting credit disputes is that the consumer’s credit scores will drop. Mortgage borrowers who barely meet the minimum FHA Credit Score Requirements run a risk of not being able to qualify for FHA Loan if their credit scores drop below the minimum credit score requirements after retracting the credit disputes.  To qualify for a 3.5% down payment FHA mortgage loan, the mortgage borrower needs a 580 FICO credit score. If the mortgage loan originator qualifies a borrower with a 580 FICO credit score but overlooked the credit disputes on the borrower’s credit report, the mortgage underwriter will catch this and will place the mortgage application on suspense until the credit disputes has been removed. Once the credit disputes are retracted and is reflected on the borrower’s credit report, the credit scores can drop below the 580 FICO minimum credit scores required to qualify for a FHA Loan.

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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