How Credit Repair Works During Mortgage Process

This BLOG On How Credit Repair Works During Mortgage Process Was UPDATED On June 7, 2017

A substantial percentage of my borrowers are folks who had prior credit issues, prior bankruptcies, foreclosures, deed in lieu, short sale and have overcome the financial issues and are now ready to purchase a home.

  • Many assumed that they do no not qualify for mortgage loan because of their bad credit.
  • The way how credit repair works during mortgage process is that the two do not go hand in hand.
  • We will be discussing on how credit repair works and how credit repair may not be needed and can be more damaging than good later on this BLOG.

Ready To Become Homeowner

  • These folks have the down payment, closing costs, and are able to comfortably afford their new housing payments on their new home purchase.
  • However, many did not pay attention to their credit and still have many derogatory items reporting on their credit report.
  • Their first reaction is to learn about how credit repair works and goes to a credit repair program prior to consulting with a loan officer to get pre-approved.
  • Many home buyers do not understand that they may not need credit repair and they do not realize that they already qualify for a mortgage loan.

How Credit Repair Works?

Most who go through credit repair go through disputing derogatory items for errors in the hopes of the credit bureaus removing it from their credit report:

  • Consumers who want to delete old derogatory items on their credit report via credit repair the go by disputing those credit tradelines to credit bureaus.
  • They need to state a reason such as “credit card does not belong to me” and a reason for either the creditor and/or credit bureaus to start a investigation as of the correctness/validity of the derogatory credit item. 
  • The credit reporting agency then contacts the creditor who then has 30 days to provide proof that the derogatory item is valid. 
  • If they provide the validity of the credit dispute, the derogatory credit item that was being disputed stays on consumer credit report. 
  • If the creditor does not respond to the consumer credit dispute to the credit bureaus within the 30 days, the disputed item must be deleted and/or corrected by the credit reporting agencies under federal law. 
  • Each one of the three credit bureaus are independent of one another so consumers need to dispute to all three credit reporting agencies.

How Credit Repair Works With Credit Disputes

Again, the way how credit repair works is by disputing derogatory and/or incorrect credit items to each of the three independent credit reporting agencies.

  • Once consumers have mailed their credit dispute to the three bureaus, each credit bureau will start mailing correspondences via mail.
  • It is best to send all correspondences to credit bureaus via certified USPS.

Inaccuracies On Credit Reports During Mortgage Process

Consumers can do credit dispute to each of the three credit reporting agencies.

  • Each of the three credit reporting agencies are independent of each other so every consumer will have three different credit scores.
  • Credit Disputes during mortgage process is not recommended unless it is absolutely necessary.
  • Borrowers who sees any inaccuracies on their credit report and need to qualify for mortgage, the loan officer should be made aware of the situation and have the loan officer and the lender handle the credit dispute.
  • Lenders can correct inaccuracies on credit reports during mortgage process with rapid rescores.
  • Rapid Rescore only takes three to five business days.

Here are the three credit bureaus:

  1. Transunion
  2. Equifax
  3. Experian

Completion Of Credit Dispute

Consumers will get a revised copy of their credit report from each of the three credit bureaus once the credit reporting agencies have completed their credit dispute investigations.

  • Consumers some deletions of negative credit items they have disputed.  
  • Some will fall off while others will stay on.
  • Each credit bureau will send revised updated credit reports which state disputed derogatory credit items and next to it, it will state whether it Remains, is Deleted, or is Updated. 
  • Most consumer’s goal with credit repair and credit disputes is to get derogatory and incorrect items removed from their credit report in hopes of improving their credit and increase their credit scores.
  • Most go through credit repair so they can qualify for mortgage.
  • Statistics state that most people get about 20% of the disputes removed the first time around.
  • Many consumers dispute the first time around by disputing every single derogatory item on their credit report and just “NOT MINE ” as a reason for your dispute.
  • Credit report should be checked periodically for errors. 

FHA Loans For Bad Credit And Lower Credit Scores

FHA Loans are the most popular loan program today for the following type of mortgage borrower:

  • First Time Home Buyers
  • Borrowers with high debt to income ratios
  • Borrowers with bad credit
  • Borrowers with late payments after bankruptcy and foreclosure
  • Borrowers with judgments and tax liens
  • Borrowers with lower credit scores
  • Borrowers with no credit or limited credit
  • Borrowers with no credit tradelines
  • Borrowers with recent bankruptcies and/or housing events
  • Borrowers in need of co-borrowers

Qualifying For FHA Loans With Bad Credit

Home Buyers do not necessarily need credit repair in most instances if they are thinking of qualifying for FHA mortgage.

Here are the basic qualification requirements for FHA Loans With Bad Credit:

  • Minimum Credit Score Requirements for FHA Loans is 580 FICO
  • Minimum down payment requirement for FHA Loans is 3.5% down payment for buyers with at least 580 credit scores
  • Home buyers with credit scores between 500 and 579 can qualify for FHA Loans with low credit scores but need 10% down payment
  • HUD is the parent of FHA and sets FHA Guidelines
  • FHA Guidelines on collections and charge offs does not require old collections and charge offs to be paid off by borrowers to qualify for FHA Loans
  • Borrowers can qualify for FHA Loans with tax lien and judgments but need written payment agreement by judgment creditor and/or IRS and need proof of three months payments
  • Proof of three months timely payments can be provided by providing three months of canceled checks and/or three months of bank statements

How Credit Disputes Can Backfire During Mortgage Process

Credit Repair during mortgage process can hurt chances of qualifying for mortgage. There are strict mortgage rules and regulations with regards on how credit repair works and credit disputes during mortgage process.

Credit Disputes are not allowed on the following during mortgage process:

  • Mortgage applicants cannot have credit disputes on non-medical collection items if the total amount of outstanding balance exceeds $1,000.
  • If the total amount of outstanding non-medical collection account balance is under $1,000, then credit disputes on non-medical collections are exempt. 
  • Non-medical collection accounts with zero balances are exempt from credit disputes.
  • Credit disputes on charge off accounts are not allowed.
  • Credit disputes on medical collections are exempt.

Home buyers with bad credit can contact us at 800-900-8569 or email us at gcho@gustancho.com if they need to get pre-approved. We are available 7 days a week, evenings, weekends, and holidays.

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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