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Mortgage Guidelines On Credit Disputes During Underwriting Process

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Mortgage Guidelines On Credit Disputes During Underwriting Process

This BLOG On Mortgage Guidelines On Credit Disputes During Underwriting Process Was UPDATED On May 14th, 2019

FHA Guidelines On Credit Disputes Explained

There are strict Mortgage Guidelines On Credit Disputes mortgage borrowers.

  • Credit Disputes is often used by credit repair companies
  • Consumers going through credit repair often use the credit dispute technique to delete negative tradelines
  • 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 here is the process:
    • they will do a credit dispute by writing a letter to the credit bureaus
    • the letter states the inaccuracy or validity of the negative credit reporting item
    • By federal law, the credit bureaus need to investigate the credit dispute
    • has 30 days to do its investigation
    • if the creditor does not validate the credit dispute, then the credit bureaus need 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, disputes during the mortgage process need to be avoided
  • This because it will back fire on the mortgage borrower

Mortgage Guidelines On Credit Disputes Allowed And What Is Not Allowed

Mortgage Guidelines on credit disputes allows borrowers to have credit disputes on medical collection accounts with balances.

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

Borrowers cannot have credit disputes on non-medical collection accounts with unpaid credit balances that is greater than $1,000. This amount is the total sum of all of the unpaid collection account balances. Anything under the aggregate amount of $1,000 is exempt.

  • Borrowers with credit disputes on non-medical collection accounts and the total unpaid outstanding balances that reflect on a credit report are less than $1,000 are exempt from retracting disputes

Screening Borrowers Prior To Issuing Pre-Approvals

One of the biggest mistakes 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.

  • Loan officers should carefully review the applicant’s credit report to make sure there are no credit disputes prior to issuing a pre-qualification letter
  • Loan Officers should not issue pre-approval letters
  • All pre-approvals at Gustan Cho Associates Mortgage Group are fully underwritten and signed off by our mortgage underwriters
  • Loan Officers should just issue pre-qualification letters
  • Buyers should not make an offer on a property without a solid pre-approval that has been fully underwritten and signed of by a mortgage underwriter
  • Retracting a credit dispute is not all that simple
  • There are creditors that will not release a credit dispute
  • They will let it linger on where it will cause delays for borrowers

Retracting 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.

  • Borrowers who barely meet the minimum FHA Credit Score Requirements run a risk of not being able to qualify for FHA Loan
  • This is the case 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, one needs a 580 credit score
  • Here is a case scenario:
    • if loan originator qualifies a borrower with a 580 credit scored
    • overlooked the credit disputes on the borrower’s credit report
    • the mortgage underwriter will catch this
    • will place the mortgage application on suspense until the credit disputes have been removed
  • Once the credit disputes are retracted and are reflected on the borrower’s credit report, the credit scores can drop below the 580 minimum credit scores required to qualify for an FHA Loan.

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