Credit Repair To Qualify and Get Pre-Approved For a Mortgage
This blog will cover credit repair to qualify and get pre-approved for a mortgage. There are three major credit reporting agencies; the giants in consumer credit reporting agencies are TransUnion, Experian, and Equifax. Credit repair is when any consumer disputes negative report items on their consumer credit report.
All disputes are ultimately going to make their way to one of the big three consumer credit reporting agencies. Thousands of local credit reporting agencies report consumer activities. Since there are so many smaller credit services when you buy that new gadget because it is 90 days, same as cash, you don’t know which credit reporting service they will use to determine your credit risk.
Every credit bureau issues a credit score, a risk factor associated with the consumer from 300-850. The higher the credit score, the better the lending prospect. When you make an application for a mortgage, the mortgage company or broker will pull credit from all three,
How Do Lenders Determine Credit Scores For Mortgage Qualification
TransUnion, Experian, and Equifax use the borrower’s middle score of the three for qualifying. What if there are two borrowers?
A credit pull for both borrowers from all three credit reporting agencies is pulled and will use the lower of the two borrower’s middle credit score for mortgage qualifying. The team at Lending Network, LLC comes across thousands of clients that need assistance with credit repair. Often only a small action on the part of the borrower can boost FICO scores so credit repair begins with the borrower.
Some life situations require assistance from credit repair professionals, and credit repair does work, and derogatory marks can be removed. Credit bureaus do make mistakes, and so do consumers. There are tricks the trade credit professionals use that can remove almost everything.
Credit Repair and Derogatory Credit Items
Outstanding collection accounts, charge-off accounts, late payments on revolving accounts, judgments, tax liens, bankruptcies, foreclosures, deed-in-lieu of foreclosure, and short sales are all derogatory credit items. All these items can be removed from your consumer credit report and stay off your credit report for good.
A borrower with a good credit report is always the ultimate borrower when qualifying for a home and going through the mortgage application process. Still, realistically, life is what happens when you are planning something else, and a large percentage of homebuyers need some guidance and credit repair.
A good mortgage loan officer will not shun you if your credit scores are below 620. Mortgage Loan Originators mostly, will help borrowers who do not qualify for a home mortgage due to low credit scores. One of my clients built a house and had a high income, but her FICO scores were below the requirement to get her into the home without a HUGE down payment.
Case Scenario of DIY Credit Repair
Upon review of my client’s credit report, the scores were low because many credit cards were near their limit. There were no late payments, but the large short-term debt was hurting. When we reviewed this, my client rearranged how credit was being used, paid off or down to 10-20% of short-term debt, and was a happy homeowner when the house was built. My point is sometimes an adjustment in the spending pattern can do it. Every consumer should take the time to review their credit and check for errors.
Planning is much easier than finding that dream home and not being able to get a pre-qualification letter because of erroneous reporting or not paying attention. Good credit is important when applying for a home mortgage, not just good FICO credit scores but good payment history. Often lenders will want to see a 12-month history of on-time payments made on any tradeline (credit cards or revolving credit). Even insurance companies will penalize you through insurance rates if your credit report reflects poor credit scores or even deny insurance coverage.
The lower the score, the higher the risk for the lender, which often means higher interest rates. For conventional mortgage loans, the best rates are reserved for those with a FICO of 720 or higher. According to FHA Guidelines, a borrower can qualify for a mortgage loan with a FICO score of 580 or above with a 3.5% down payment. Still, when scores are below 620, the allowable debt-to-income ratio (DTI) drops dramatically. Even prospective employers sometimes pull credit to decide the job applicant’s character. This is especially true in the financial services industry.
How To Get NMLS MLO Licensed With Bad Credit
Mortgage regulators will pull credit on every prospective mortgage loan officer applying for state licenses to determine “financial responsibility,” a broad term gives each state the right to ask questions and expect answers for any derogatory report on an applicant’s credit report. Some states will pay special attention to an applicant with scores of 620 or below.
Mortgage regulators want to see if an applicant has re-established credit for 12 months if they have derogatory reporting on their credit report. The state of New York will spend weeks or even months after pre-education and application are made before approving a license, whereas California may pull credit as required but may not even look at it.
The point I would like to make here is that Mortgage Loan Originators know how it feels to have their credit under a microscope. Since I have been in the business, I have checked everything consistently. On another note, I have used professional credit repair to remove some items from my credit report. Sometimes it is necessary. Mistakes are made.
Credit Repair-Is it necessary?
I don’t know anyone I have met in recent years that does not know what credit repair is—unfortunately, many disdain credit repair due to a bad experience. On the same note, I know people with positive words about credit repair. Since 2008, many laws and regulating bodies have had the authority to “reach out and touch” a Credit Repair professional acting evilly.
Many do-it-yourself credit repair guides will direct almost anyone through credit repair for themselves by disputing derogatory credit to the big three credit bureaus. For a person with documentation of proof of errors, these work and allow privacy.
I have found that many people do not use credit repair for one or two reasons. They do not want to share because they may be embarrassed or ignore it because of the frustration or hassle of dealing with it.
How Credit Repair Companies Work
It angered me that errors were made, and by me putting it off, like ignoring help, it got worse, so I gave in and hired someone, and quite painlessly, the corrections were made. Once a consumer disputes a derogatory item, the credit bureaus will contact the creditor and relay the disputed item. The creditor has 30 days to respond and validate the item. If there is no response by the creditor (often there is not), the credit bureaus must delete the credit item.
Many creditors will hire Credit Repair companies such as Credit fix advisors. I have witnessed credit repair companies remove late payments, collection, charge-offs, repossessions, foreclosures, bankruptcies, and judgments deleted from consumer credit files.
However, like anything in life, they are not 100% guaranteed, and sometimes credit repair does not work for mortgage qualification. Sometimes it requires time.
How To Do Credit Repair To Qualify For a Mortgage
Over time, credit improves, and in situations like VA, FHA, and USDA mortgage loan applications after bankruptcy or foreclosures, there are required waiting periods.
The good news is you do not know if you do not ask, and having a bankruptcy, foreclosure short sale, or deed instead of foreclosure will not keep you from becoming a homeowner again. A mortgage loan originator should never issue a pre-approval letter to a home buyer without reviewing the credit report thoroughly.
Many loan officers will see open credit disputes and issue a pre-approval letter, but this can be troublesome. Open credit disputes will not stop you from qualifying for a mortgage, but they will halt the process. A mortgage loan officer may instruct you to detract the dispute and issue a pre-approval letter, but the detraction can take weeks to months.
Why Lenders Do Not Allow Credit Disputes During Mortgage Process
Furthermore, when a consumer disputes a negative credit item, the credit bureaus automatically discount the negative credit items from the scoring formula, so this derogatory is not calculated into a consumer’s credit score. When the credit dispute is retracted, the negative item is calculated back, and the FICO scores will drop.
However, if you remove any public records, you will have challenges going through the mortgage application process. Every mortgage lender will do a third-party search using Lexis Nexis or Data Verify, nationwide third-party public records search. As mentioned earlier, there is a mandatory waiting period after a bankruptcy and foreclosure, a 2-year waiting period after a Chapter 7 Bankruptcy to qualify for FHA Loan.
For the borrower/applicant riding the fence between qualifying and non-qualifying FICO scores, this may drop may keep them from qualifying. The drop in score can be significant if the item is a recent derogatory item. If it is an older one, it may not be as significant. Please remember the FICO scoring algorithm is complex, posted on the FICO website, and still complex.
When Credit Repair May not work
Credit repair professionals can delete outstanding collection accounts, late payments, repositions, and charge-off accounts and help the borrower/applicant improve their credit scores. There would be no way of finding out once a negative item is removed from one’s credit report.
A three-year waiting period after a short sale, foreclosure, and deed instead of foreclosure to qualify for an FHA loan. Maybe these were deleted from your consumer credit report, but they will show up on the third-party records search, and there is nothing but time to escape it. Tax liens, judgments, or any public record will be found.
The Lending Network, LLC team is available seven days a week, on holidays and weekends. We look forward to assisting you and providing resources for the American Dream of Homeownership.
