This Article Is About Credit Disputes During Mortgage Reason For Loan Denial
It Is Important For Loan Officers And Borrowers To Realize That Credit Disputes Can Delay The Mortgage Process And Delay The Closing. The three credit reporting agencies ( Transunion, Experian, Equifax ) often times report inaccurate information on consumer’s credit reports. The only way of correcting it is through disputing the inaccurate information either to the credit bureaus and/or creditor through credit disputes.
Many consumers who want to repair their credit either by themselves or a credit repair company need to do it by disputing the negative credit items to the credit reporting agencies. Credit disputes are done by stating that the derogatory credit information that is being posted on the consumer’s credit report is inaccurate.
In this article, we will cover and discuss credit disputes during the mortgage process.
How Do Consumers Dispute Derogatory Credit
When consumers first write a credit dispute letter to each of the credit bureaus reporting it, the credit bureaus will post that the account is in dispute on the credit report while they are investigating the credit dispute. The credit reporting agency will then contact the creditor and notify them of the credit dispute and the creditor has 30 days to respond to the credit bureaus as to the validity of the credit dispute by the consumer. If the creditor does not respond to the credit dispute to the credit bureaus, the credit reporting agency needs to remove the inaccurate information by federal law.
In many instances, the credit reporting agencies still do not remove the negative disputed credit item and the consumer’s credit report still will state that the credit item in question is still under credit dispute. You cannot have certain credit disputes during the mortgage process or your mortgage loan process will come to a sudden halt. The mortgage process cannot continue until the credit disputes have been retracted and removed from your credit report. This can cause delays in the mortgage process and getting a mortgage loan approval and closing on your home loan.
Non-Medical Credit Disputes During Mortgage Reason For Loan Denial
One great advantage with medical collections is that the mortgage industry is more lenient with credit disputes during the mortgage process with outstanding medical collections.
Mortgage lenders categorize collection accounts into two separate categories:
- Medical collections
- Non-Medical Collections
Credit Disputes during mortgage process on medical collection accounts is exempt:
- Consumers can dispute negative medical collection items and that will not affect credit disputes during the mortgage process
- Borrowers can have unpaid medical collection balances
- It will not affect them during the mortgage loan application and mortgage underwriting process
- There may be lenders that will not accept credit disputes during the mortgage process with medical collections
- But borrowers do run into a lender that will tell them to retract medical collection account credit disputes during the mortgage process
They then get a different lender because medical collection accounts credit disputes are exempt.
Credit Disputes During Mortgage On Non-Medical Collection Accounts
There are certain mortgage lending guidelines with regard to credit disputes during the mortgage process on non-medical collection accounts. Mortgage Applicants who have unpaid collection accounts with zero balances can have credit disputes during the mortgage process.
If borrowers have unpaid non-medical collection accounts of greater than $1,000 ( total of all unpaid collection accounts from all of the creditors), they need to have all of the credit disputes retracted in order for the mortgage process to go further.
Credit Disputes During Mortgage Reason For Loan Denial With Charge Offs
Loan Applicants can have charged-off accounts on their credit report and qualify for a mortgage loan without having to pay it off. Charge-off accounts are ignored by lenders. You cannot have credit disputes during the mortgage process on charge-off accounts or your mortgage process will come to a halt until the credit disputes on charge-off accounts are retracted. Do not dispute charge-off accounts if you intend in applying for a home loan.
Major Issues With Retracting Credit Disputes During Mortgage Process
Retracting credit disputes during mortgage process can have a major negative impact on the mortgage loan borrower. If you retract a credit dispute, the chances are that your credit scores will go down. If you are barely meeting the minimum credit score requirements to qualify for a home loan and you need to retract credit disputes during mortgage process, the drop of your credit scores may make you ineligible to qualify for a home loan. There are many instances where a mortgage loan borrower qualified for a home loan with their credit scores but they did not qualify for a home loan after the credit disputes were retracted. There are instances where the consumer’s credit scores can drop more than 50 FICO points by having the credit disputes retracted.