Is Credit Repair Needed To Qualify For Mortgage

Is Credit Repair Needed To Qualify For Mortgage Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About Whether Is Credit Repair Needed To Qualify For Mortgage Loans

Should I Repair My Credit Prior To Consulting With A Loan Officer To Qualify For A Home Loan? This is one of the biggest mistakes homebuyers make. Homebuyers automatically think they should repair their credit with a credit repair company prior to consulting with a loan officer. This is a big mistake. Credit repair can do more damage than help borrowers with bad credit. Credit disputes are not allowed during the mortgage process. Credit disputes on non-medical collections, charged-off accounts, late payments, and other derogatory credit tradelines need to be removed during the mortgage process. You do not need credit repair to qualify for a mortgage. Borrowers can qualify for a mortgage with outstanding collections and charged-off accounts without paying them off. The key in getting an approve/eligible per automated underwriting system is to have been timely in the past 12 months with all of the monthly payments that report on credit bureaus. Gustan Cho Associates has no lender overlays on government and conventional loans. In this article, we will discuss and cover why credit repair can do more damage than good during the mortgage process.

What Is Credit Repair And The Dangers Of Removing Disputes?

Credit repair is the process of correcting errors or attempting to remove derogatory credit items that are reflected on the consumer credit reports. Most techniques of credit repair is by disputing derogatory credit tradelines that is posted on the three major credit bureaus. Many mortgage borrowers are not aware that they can qualify for Home Loans with outstanding collections and charged-off accounts. They do not have to pay outstanding collections and charged-off accounts to qualify for FHA and other loan programs. However, is credit repair needed to qualify for a mortgage?  The answer depends. In this article, we will cover and discuss whether or not credit repair is needed to qualify for a mortgage.

Removing Errors On Credit Report

Is Credit Repair Needed To Qualify For Mortgage Loans if there are errors on the credit report? The answer is yes. There are differences between disputing a legitimate credit reporting error or doing a credit dispute on a legitimate credit tradeline for the sake of getting it deleted.  One should definitely remove derogatory information that is on their credit report immediately as long as it is legitimate. However, you need documentation and proof to remove a legitimate credit error. This can be done in a short period of time. However, many consumers try to remove legitimate derogatory information from their credit reports. This can be done but consumers need to know that credit repair during the mortgage process can end up hurting them instead of helping. If you have all the documentation proving the error, the loan officer can do a rapid rescore. A rapid rescore can be done by the lender to correct the error in five to seven business days. Most lenders will cover the cost of the rapid rescore.

Is Credit Repair Needed To Qualify For Mortgage And Does It Work?

The three giant major credit bureaus are semi-regulated by the federal government. Transunion, Experian, and Equifax are the big three credit reporting agencies. There is no doubt that credit reporting agencies make mistakes in reporting inaccurate information on consumers. An error on a consumer’s credit report can plummet a consumer’s credit scores. Errors can cause higher interest rates on credit and loans for the consumer. Every consumer should check their credit report periodically for errors. Make sure that they correct the errors by disputing the errors to all three credit reporting agencies. Consumers with valid proof documenting that the derogatory credit item or any credit item contains inaccurate information need to write a letter along with the proof to all three credit reporting agencies. Make sure to document and keep a copy of all of the correspondences between yourself and the credit reporting agencies. Send all mail via certified mail. Once the credit reporting agencies get the receipt of a credit dispute, they have 30 days to correct the error or validate the debt.

Removing Derogatory Credit That Belongs To You

Many people hire credit repair companies to remove derogatory credit items from their credit reports. There are thousands of credit repair companies in the United States that specialize in removing negative items off one’s credit report. For those who have recently filed bankruptcy or had a foreclosure, it is next to impossible to remove a fresh derogatory credit item from the credit report. Anything a credit repair company does, one can do it themselves.

How Does Credit Repair Work

Most credit repair companies use the credit dispute technique in trying to delete a derogatory item Pretty much, the credit repair company will send dispute letters to the credit bureaus stating that the derogatory credit item does not belong to the consumer. Credit Bureaus then sends a letter to the creditor reporting the questionable disputed tradeline. Creditors have 30 days to respond and if they do not send validation to the credit bureaus, the bureaus need to remove them from the credit report.

Credit Dispute

Even if the derogatory credit item is not consumers, each of the three credit bureaus needs to contact the creditor who is reporting the derogatory item. That creditor needs to respond validating their claim that the derogatory credit item is valid and your dispute is not valid.

  • If they provide documentation and/or proof that the derogatory credit item belongs to the consumer, the derogatory credit item stays on the credit report
  • If the creditor does not provide proof or does not respond, then each of the three credit bureaus needs to delete the derogatory credit item off the credit report by law
  • The credit bureaus will then send the consumer a copy of the new credit report stating the results
  • Results will be the disputed credit items has been deleted, or whether it will remain on the report because the creditor verified the disputed item
  • This process is repeated over and over again until the derogatory credit item is removed
  • What credit repair companies are betting on is that the creditor will one day not respond back to the credit bureaus

Due to this technicality, the credit bureaus will eventually delete the derogatory item.

Removing Derogatory Credit Items Off Credit Report

This technique of disputing derogatory credit items does work and there are relentless credit repair companies that will act on behalf of their credit repair clients and do a great job. However, remember that fresh newer credit derogatory items are extremely difficult to delete because the creditor has the delinquent account readily available to them. Older derogatory credit items are easier to have deleted because many creditors sell charge-offs or aged delinquent credit accounts for pennies on the dollar.

Is Credit Repair Needed To Qualify For Mortgage For Derogatory Deletion

Consumers can get a recent late payment or derogatory credit item removed or deleted. Once deleted, credit scores normally increases:

  • However, it is almost next to impossible to get a derogatory credit item or late payment that is less than one year old removed from a credit report
  • The older credit derogatory item is, the easier it is to have it deleted from the credit report
  • However, older derogatory credit items have very little or no impact on credit scores
  • Most times it is a waste of money in hiring a credit repair company to get derogatory items older than two years old removed from the credit report
  • This is because it is too old to have any positive impact in boosting credit scores
  • If intentions of hiring a credit repair company are to qualify for a mortgage, please think twice
  • Lenders do understand that people have periods of financial distress

Lenders understand that credit scores can suffer during periods of unemployment, medical issue, or divorce.

Is Credit Repair Needed To Qualify For Mortgage To Qualify For Home Loan With Bad Credit

Is Credit Repair Needed To Qualify For Mortgage To Qualify For Home Loan With Bad Credit

Homebuyers can qualify for a home loan with bad credit as long as they have been timely on their payments for the past 12 months. .Is Credit Repair Needed To Qualify For Mortgage? Credit Repair is not required. Borrowers can have prior bad credit to qualify for a mortgage. Borrowers can have prior derogatory credit and open collection accounts and still qualify for FHA, VA, and Conventional Loans without having to pay off the old collection accounts. Those who have recently filed bankruptcy or had a foreclosure should start re-establishing their credit by getting several secured credit cards. Re-establishing credit with adding secured credit cards is a wiser choice instead of spending their money on hiring a credit repair company.

Is Credit Repair Needed To Qualify For Mortgage After Bankruptcy And Foreclosure

A bankruptcy and/or foreclosure will plummet credit scores by almost 200 points but this drop is not a permanent drop.

  • Credit scores will gradually increase over time
  • Getting new credit such as 3 to 5 secured credit cards will speed up improving credit scores
  • Each secured credit card after bankruptcy or after a recent foreclosure should boost up credit scores by at least 20 or more points
  • Credit scores will gradually improve as payment history on secured credit cards ages
  • One or two installment loan accounts will strengthen your credit profile

I have seen people’s credit scores at 700 and higher just over a year after foreclosure and/or bankruptcy just by them getting 3 to 5 secured credit cards.

Credit Disputes During Mortgage Application Process

One of the worst things borrowers can do is dispute a derogatory credit item with a credit balance during the mortgage application process.

  • Borrowers cannot have a credit dispute with a credit balance of over $1,000 during the mortgage approval process
  • There are exemptions on medical collections
  • Borrowers with pending credit dispute with any credit bureaus during the mortgage application process, the mortgage process will be in suspense until that credit dispute is retracted
  • By retracting the credit dispute, credit scores will drop
  • Any credit dispute that gets retracted will affect a consumer’s credit scores
  • One recent credit dispute retraction from one of my clients has plummeted her credit scores by 80 points
  • Home Buyers planning on applying for home loans now, or in the near future, do not dispute any derogatory information
  • Disputing derogatory information prior to applying for a residential mortgage loan in the near future will hurt chances of getting a mortgage

Home Buyers who need to qualify for a mortgage with a direct lender with no mortgage overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at So next time there is a question Is Credit Repair Needed To Qualify For Mortgage, contact us first before going and spending money on things not needed to qualify for home loan.

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