This Article Is About Removing Negative Items To Qualify For Mortgage
Gustan Cho Associates are experts in advising borrowers in rebuilding and boosting their credit scores to qualify for a mortgage.
Removing negative items to qualify for a mortgage is recommended in certain circumstances but not all circumstances. We will discuss the pros and cons in removing negative items to qualify for a mortgage through credit repair on this blog article post. Credit Repair does take time. Consumers who have bad credit and a lot of negative accounts may try to start a credit repair program well in advance of buying a home. There are hundreds of thousands of credit repair companies. Like all industries, you need to do your due diligence and choose the right credit repair consultant to hire in repairing your credit.
Does Credit Repair Work?
Often times I get asked whether credit repair works. Credit repair does work but not all derogatory items can be deleted. I have personally seen credit repair consultants remove public records such as bankruptcies, foreclosures, short sales, judgments, tax liens, student loan collection accounts, and delinquent child support accounts. The older the derogatory credit tradeline is, the easier it is to have it removed. Delinquent credit items that are recent are extremely difficult to get removed from the credit report.
We are not going to get into how to remove negative derogatory credit items in this article. We will be discussing what kind of credit repair work and removing negative items to qualify for mortgage loans.
Removing Negative Items To Qualify For Mortgage And Credit Disputes In Mortgage Process
If you are planning in qualifying for a mortgage loan right away, credit repair is not recommended because you cannot have credit disputes during the mortgage process. Any non-medical collection account disputes with balances and charged-off account credit disputes are not allowed during the mortgage process.
The credit disputes need to be retracted and removed from the credit report in order for the mortgage loan process to continue.
Impact On Scores When Retracting Credit Disputes During The Mortgage Process
By retracting the credit disputes, it will lower your credit scores but the credit scores will eventually go back up over time. Credit repair companies dispute negative credit items to the three credit reporting agencies to try to get the negative reporting items deleted from the consumer’s credit report. Once the credit bureaus receive the credit disputes, the credit bureau will contact the creditor in question and the creditor has 30 days to respond back with the validity of the consumer credit dispute.
If the creditor does not get back to the credit bureaus within 30 days, the credit reporting agencies need to remove the derogatory items from the consumer’s credit report by federal law.
HUD Guidelines On Collections Accounts On FHA Loans
Consumers need to understand that they can qualify for FHA Loans with unpaid outstanding collection accounts without having to have them paid off. Consumers also need to realize that removing derogatory credit items that are older and age will not necessarily improve the consumer’s credit scores. The older the derogatory credit item is, the less of an impact the derogatory item has on a consumer’s credit scores.
Removing older collection accounts with balances is a good idea for home loan borrowers with higher debt-to-income ratios. This is because mortgage lenders will use 5% of the unpaid outstanding collection account balance as a monthly debt in debt to income ratio calculations. Larger outstanding collection accounts can be an issue with borrowers with higher debt-to-income ratios.
Having larger collection accounts with outstanding balances, the mortgage lender will not be able to take the 5% of the outstanding collection balance to calculate debt to income ratios. This is because it is no longer on the credit report.
HUD Guidelines On Charged-Off Accounts
Charge-off accounts do not matter with FHA Loans. However, if the borrower wants to have the charge off accounts removed, they should do so long ahead of when they are planning on applying for a mortgage loan.
This is because credit disputes on charge-off accounts are not allowed during the mortgage process.
Removing Negative Items To Qualify For Mortgage: Judgments And Public Records
Removing Negative Items To Qualify For Mortgage works and a creative credit repair company can remove derogatory negative credit items such as collection accounts, charge off accounts, late payment accounts, tax liens, child support payments, student loans, bankruptcies, foreclosures, and short sales. Removing collection accounts and charge offs will work and creditors cannot find out about it if the negative collection accounts and charge offs are deleted from the consumer’s credit reports. However, for those consumers who get public records removed such as bankruptcies, foreclosures, tax liens, and judgments of their credit report, this will not fly with mortgage lenders.
This is because all mortgage lenders will do a third-party national search during the QC Underwriting Review process.
Non-public records such as outstanding collection accounts, late payments, and charge-off account are okay with credit repair but public records deletions will not work with mortgage lenders.
August 10, 2021 - 4 min read