How Credit Repair Works During Mortgage Process

How Credit Repair Works During The Mortgage Process

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers how credit repair works during the mortgage process. A substantial percentage of my borrowers are folks who had previous credit issues, prior bankruptcies, foreclosures, a deed in lieu, or short sales and have overcome the financial issues and are now ready to purchase a home.  HUD, the parent of FHA, does not allow credit disputes on derogatory credit tradelines and non-medical collection accounts, says John Strange, of Gustan Cho Associates:

HUD, the parent of FHA loans, does not permit borrowers to have credit disputes on non-medical derogatory credit tradelines and collections on FHA loans.

You can have credit disputes on VA, USDA, non-QM, jumbo, and conventional loans. However, Many assumed they did not qualify for a mortgage loan because of bad credit. The way how credit repair works during the 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 be unnecessary and more damaging than good later in this BLOG. This article will discuss and cover how credit disputes affect the mortgage process.

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These folks have the down payment and closing costs and can 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 reported on their credit report. Their first reaction is to learn how credit repair works and go to a credit repair program before 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.

Victims of erroneous credit reporting need to state a reason, such as “credit card does not belong to me,” and a reason for either the creditor or credit bureaus to investigate the correctness/validity of the derogatory credit item. The credit reporting agency then contacts the creditor, who has 30 days to prove 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. Suppose the creditor does not respond to the consumer credit dispute to the credit bureaus within 30 days. In that case, the credit reporting agencies must delete or correct the disputed item under federal law. Each of the three credit bureaus is independent of one another, so consumers need to dispute all three credit reporting agencies. Contact us to get more information about credit repair

How Credit Repair Works With Credit Disputes

Again, credit repair works by disputing derogatory 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 mail correspondences. 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 ProcessConsumers can do credit disputes with each of the three credit reporting agencies. Each credit reporting agency is independent of the other so every consumer will have three different credit scores. Credit Disputes during the mortgage process are not recommended unless it is 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. With rapid rescores, lenders can correct inaccuracies on credit reports during the mortgage process. 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

You cannot have credit disputes on derogatory and non-medical collection accounts on FHA loans. Other loan programs depends on the findings of the Automated Underwriting System findings. 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 that state disputed derogatory credit items, and next to it, it will state whether it Remains, is Deleted, or is Updated.

Most consumers’ goal with credit repair and credit disputes is to get derogatory and incorrect items removed from their credit reports to improve 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 disputes removed the first time around. Many consumers dispute the first time by disputing every derogatory item on their credit report and just “NOT MINE ” as a reason for their 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 borrowers:

  • 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 or housing events
  • Borrowers in need of multiple co-borrowers

Qualifying For FHA Loans With Bad Credit

Homebuyers do not necessarily need credit repair in most instances if they consider 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 3.5% 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. Click here to qualify for FHA loans with Bad Credit

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 or IRS and proof of three months’ payments. Proof of three months of timely payments can be provided by providing three months of canceled checks or three months of bank statements.

How Credit Disputes Can Backfire During Mortgage Process

Credit Repair during the mortgage process can hurt the chances of qualifying for a mortgage. There are strict mortgage rules and regulations about how credit repair works and credit disputes during the mortgage process. Credit Disputes are not allowed on the following during the mortgage process.

Mortgage applicants cannot have credit disputes on non-medical collection items if the outstanding balance exceeds $1,000.

If the 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 800-900-8569 or text us for a faster response. Or email us at if they need to get pre-approved. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

Talk to our expert about your loan, click here

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