Credit Repair To Qualify For FHA Loans Can Backfire
This blog will discuss how credit repair to qualify for FHA loans can backfire during the mortgage process. FHA loans are the most popular loan program in the United States. The United States Department Of Housing And Urban Development (HUD) is the Federal Housing Administration (FHA) parent. FHA has the most lenient mortgage lending guidelines regarding owner-occupant mortgage loans.
Credit Repair Is Not Required To Qualify For a Mortgage
Credit repair to qualify for FHA loans is not required. Many first-time home buyers who had prior bad credit or even home buyers with bad credit often assume that credit to qualify for FHA loans is needed before even contacting a mortgage loan originator. Credit repair is a huge business where not there are television ads on credit repair businesses.
Credit Repair to Qualify For FHA Loans Can Do More Damage than Help
Many consumers get into a credit repair program that thousands of companies offer.
Credit repair to qualify for FHA loans can backfire on mortgage borrowers if done incorrectly. There are ways to boost credit scores and correct erroneous tradelines on consumer credit reports.
Many credit repair companies and consultants will dispute every derogatory credit tradeline on a consumer credit report. Credit Disputes, except medical collections, are not allowed during the mortgage loan process.
Is Credit Repair To Qualify For FHA Loans Recommended?
Credit Repair To Qualify For FHA Loans is not recommended. Many borrowers do not realize that they can qualify for a mortgage with prior bad credit.
Lenders want to see timely payments on all payments in the past 12 months. Borrowers can qualify for FHA loans with outstanding collections, charge-off accounts, and late payments.
Collections and charge-offs do not have to be paid off to qualify for FHA loans under FHA guidelines. Credit repair to qualify for FHA loans can backfire on borrowers.
Important Facts To Know Before Credit Repair
Qualifying For Credit Repair When applying for a mortgage loan, three factors are very important:
- Income
- Borrower’s Liabilities
- Credit Profile
All mortgage loan programs have a minimum credit score for borrowers to meet. FHA requires a minimum of 580 credit scores for a home buyer to qualify for a 3.5% down payment home purchase FHA loan.
Costs Involving With Home Purchase
There are two types of payments home buyers need to come up with:
- Down Payment
- Closing Costs
Down Payment can be gifted to home buyers under FHA guidelines. Most FHA Homebuyers do not have to worry about closing costs.
- Closing costs can be covered with seller concessions
- And lender credit
Improving Credit Scores With Credit Repair To Qualify For FHA Loans
Lenders want to ensure that home buyers can afford the monthly mortgage payments and that the mortgage payment will be timely. In a way, they predict your creditworthiness and payment ability by combining and analyzing the three factors. Credit scores are taken seriously because it shows credit history on past credit payments.
A higher credit score means a lower mortgage rate and costs for a homebuyer or a refinance mortgage loan client. For those who have errors on their credit report, it is strongly suggested that they either hire a credit repair company or repair their credit repair on their own
Whatever a credit repair company can do, one can do it themselves. Homebuyers do not need to hire credit repair to qualify for FHA loans. However, many folks do not want to be bothered with disputing their erroneous or negative credit. Many hire a credit repair company. Credit repair should be taken seriously, and every consumer should monitor their credit at least once a year. People must be aware of many dangers in credit repair during the mortgage loan application process.
Repair Own Credit Versus Credit Repair To Qualify For FHA Loans
We have covered many blogs about credit repair and how to repair your credit. We will be blogging more on credit repair in future blogs. As for credit repair companies, consumers should do due diligence on which credit repair company they hire. Ask the credit repair company for references. Referrals are probably the best way to hire a credit repair company. Borrowers do not want to hire a credit repair company that takes their money and lets the file sit.
Credit repair does take time. Bad credit items cannot be deleted overnight. Deleting and correcting incorrect or negative credit items takes weeks or months. It might take several months, if not over a year, for a consumer to dispute their credit and get the correct/updated results. Do Not Try Deleting Public Records. By disputing them, bankruptcies, judgments, collections, tax liens, and charge-offs can be deleted from credit reports.
Even if those negative items are correct, consumers can still dispute them, and if you get lucky, those items can and oftentimes do get deleted. Even if judgments, bankruptcies, and foreclosures get deleted from a credit report, they must be disclosed when applying for a mortgage. Why do credit repair if it still needs to be disclosed?
Dangers Of Credit Repair In Qualifying For FHA Loans
All mortgage loan programs, whether FHA, VA, USDA, Fannie Mae, or Freddie Mac, will not allow credit disputes during the mortgage process. When a consumer disputes a credit tradeline, the credit bureaus automatically negate the negative tradeline from the credit score formula. So what this means is that when a consumer disputes a late payment, collection, charge-off, or other derogatory credit, the credit scoring formula will take it as if the negative item doesn’t exist. This causes a spike in consumer credit scores.
When lenders request that borrowers retract credit disputes, the consumer credit scores will drop again. This is because the credit scoring system will count the derogatory item to the credit scoring model. Medical disputes are exempt from credit disputes. Zero balance non-medical collections are exempt from credit disputes. Non-medical collections with total aggregate balances under $1,000 are exempt from credit disputes.
Some creditors will not retract credit disputes when requested. When creditors do not retract credit disputes, the mortgage process cannot proceed and will be HALTED and in SUSPENSE Status until the disputes are retracted.. Retracting credit disputes can drop credit scores, and mortgage borrowers will no longer qualify. Credit disputes on collection accounts 24 months or older are exempt from credit disputes. Homebuyers who need to qualify for FHA loans or other loan programs with a direct lender with no overlays on government and conventional loans, feel free to contact us at FHA Bad Credit Lenders at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We are available seven days a week, evenings, weekends, and holidays.
