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Credit disputes: impacting mortgage approvals

Posted on March 23, 2011 by Ray Williams.

So recently you may have been delayed or are being delayed for closing on a house. There is a new thorn on the rose bush. It is called “credit disputes”. Do you know if you have a credit dispute then many investors will not buy the mortgage from a lender on the secondary market. So what does this mean?

It is imperative to scrub your credit before you go to write a contract on a house. Even if you have a 760 FICO score there could be an old credit dispute you don’t even remember putting on to the credit report. If this pops up and rears its ugly head, you will be downgraded to a manual underwrite. What does this mean?

If your lender will approve on a manual underwrite (we do) they are going to want your debt ratios conservative, no payment shock (new mortgage versus rent), and want to see healthy assets in reserve after you close on your house. If you don’t then they won’t approve a manual underwrite.

If you are unsure, make sure to pull your credit and look for any credit account that shows the status as account in dispute by consumer” “account in dispute”. If you didn’t dispute or can’t remember why, make sure to call the creditor (Visa, M/C, BMW….) and ask them to get you a letter to remove the dispute from your credit report. Then make sure you send that letter to the credit bureaus yourself. Follow up to make sure it has been removed.

If you don’t and aren’t aware of this, and the lender you select doesn’t pay attention to your credit report then you could be in for a surprise. If you are told a week or two before closing about this, it’s likely the time it takes to clear up will delay your closing.

Why does this matter? Well if you think about credit scores, know that there is no way to disseminate between a legitimate dispute and one initiated to inflate a credit score. See the dispute status removes the impact a potential negative account has on your score. So to resolve this the investors have said they don’t want any disputes on credit reports, or it has to be manually approved.

Make sure you take heed, or remember when you start the process!

Ray

303.779.0591 x 101

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