How Credit Repair Works During Mortgage Process

This Article Is About How Credit Repair Works During Mortgage Process

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 not qualify for a 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 how credit repair works. We will discuss how credit repair may not be needed and can be more damaging than good later on this BLOG. In this article, we will discuss and cover how credit disputes affect the mortgage process.

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 homebuyers do not understand that they may not need credit repair. 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 them from their credit report. Consumers who want to delete old derogatory items on their credit report via credit repair 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 an investigation as to 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 the consumer credit report. If the creditor does not respond to the consumer credit dispute to the credit bureaus within 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 is 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

Inaccuracies On Credit Reports During Mortgage Process

Consumers can do credit disputes with each of the three credit reporting agencies. Each of the three credit reporting agencies is independent of each other so every consumer will have three different credit scores. Credit Disputes during mortgage process are not recommended unless it is absolutely necessary For borrowers who see any inaccuracies on their credit report and need to qualify for a 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 a 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 reports 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
  • 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 multiple co-borrowers

Qualifying For FHA Loans With Bad Credit

How to 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 an FHA mortgage. Here are the basic qualification requirements for FHA Loans With Bad Credit. The minimum credit score requirement for FHA Loans is 500 FICO.  The minimum down payment requirement for FHA Loans is a 3.5% down payment for buyers with at least 580 credit scores. Homebuyers with credit scores between 500 and 579 can qualify for FHA Loans with low credit scores but need a 10% down payment. HUD is the parent of FHA and sets Guidelines on FHA Loans. FHA Guidelines on collections and charge-offs do not require old collections and charge-offs to be paid off by borrowers to qualify for FHA Loans.

How Credit Repair Works On Judgments And Tax-Liens

Borrowers can qualify for FHA Loans with tax lien and judgments. But need a written payment agreement by the judgment creditor and/or IRS and need proof of three months payments. Proof of three months of 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 the chances of qualifying for a mortgage.

There are strict mortgage rules and regulations with regard to 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. Homebuyers with bad credit can contact us at 262-716-8151 or text us for a faster response. Or email us at [email protected] if they need to get pre-approved. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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