Credit Disputes Can Halt The Mortgage Process And Approval

by Tammy Trainor

This ARTICLE On Credit Disputes Can Halt The Mortgage Process Was PUBLISHED On October 7th, 2020

Credit Disputes Can Halt The Mortgage Process.

  • Loan officers should never issue a mortgage pre-approval letter with outstanding credit disputes
  • The credit score with outstanding credit disputes are not the accurate credit scores
  • Whenever a consumer disputes a derogatory credit tradeline, the credit bureaus automatically discount the negative factor of the tradeline from the credit scoring formula
  • What this means is the credit scoring formula automatically takes the derogatory credit tradeline from the scoring model
  • When a credit tradeline is being disputed, the consumer credit scores will increase because the credit scoring model discounts the negative factor from the credit scoring model
  • All credit disputes that are not exempt need to be removed prior to the loan officer issuing a pre-approval letter

Therefore, a credit dispute will increase the consumer credit scores.

Why Lenders Require Credit Disputes To Be Removed

Why Lenders Require Credit Disputes To Be Removed

A loan officer should never issue a written mortgage pre-approval for any borrowers with outstanding credit disputes unless the credit disputes are exempt.

  • A pre-approval issued with outstanding credit disputes is null and void
  • Non-exempt disputes need to be retracted
  • When disputes are removed, the negative impact is factored back into the credit scoring model and can plummet credit scores
  • Often times, credit scores can drop more than where it was at originally
  • This is because the derogatory credit tradeline is being counted as a newer negative item in the credit scoring model

This is one of the top reasons why credit repair can do more damage than help for borrowers during the mortgage process.

Credit Disputes Will Artificially Increase Credit Scores

Multiple credit disputes may jack up consumer credit scores artificially:

  • This is why lenders do not honor a borrower’s credit scores and report with outstanding credit disputes
  • When consumers retract credit disputes, the credit scoring model triggers the derogatory tradeline back into the scoring model and the scores will drop
  • Loan officers and mortgage processors should carefully go over the borrower’s credit report prior to issuing a pre-approval letter
  • Mortgage processors should also review the borrower’s credit report and carefully check to see if the borrower has any credit disputes
  • Unfortunately, many loan officer overlook this important issue and issue pre-approval letters
  • Likewise, many mortgage processors overlook disputes when processing a file and submit the file to underwriting
  • Mortgage underwriters will catch disputes instantly and will suspend the file
  • It will then get kicked back to the mortgage processor
  • The file is now back to square one
  • Overlooking credit disputes is one of the main reasons for delays in the mortgage process which often delays the closing date

In this article, we will discuss and cover how Credit Disputes Can Halt The Mortgage Process.

Credit Disputes Can Halt The Mortgage Process: Exempt Disputes

Can credit disputes stop the mortgage process

Some credit disputes are exempt from retraction.

  • However, lenders with overlays can make a borrower retract the exempt disputes even though agency mortgage guidelines does not require you to do so
  • All medical disputes are exempt from retraction
  • You can have credit disputes on all medical collections and/or charged-off accounts no matter how much the outstanding balance is
  • Non-medical outstanding collection accounts and/or charged off accounts that is two years or older from the date of last activity (DLA) are exempt from retraction
  • Aggregate non-medical outstanding collection accounts with an aggregate total outstanding balance of $1,000 or less are exempt from retraction
  • Let’s take a case scenario
  • Let’s say a borrower has three different non-medical outstanding collection accounts totaling $800.00
  • The three collection accounts do not have to be retracted because the aggregate total is less than $1,000
  • Capital Lending Network, Inc. has no lender overlays on government and conventional loans
  • Therefore, CLN will honor the above agency guidelines on credit disputes that are exempt
  • However, many lenders with lender overlays can ask exempt disputes to be retracted
  • Borrowers do not need credit repair in order to prepare to qualify for a home mortgage
  • Often times, credit repair does more damage than good
  • In most cases, derogatory credit tradelines that is older than two years old has little to no negative impact on consumer credit scores

Derogatory credit items will fall off your credit report after seven years from the date of last activity (DLA). Chapter 13 Bankruptcies and judgments will fall off consumer credit reports in 7 years. Chapter 7 Bankruptcies remain on consumer credit reports for 10 years.

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3 comments

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Zach Wilson November 6, 2020 - 2:36 am

I would really like to purchase a new home for me and my children, but my credit score is low. I will have money for a down-payment, I just need help obtaining a loan.

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Gustan Cho
Gustan Cho November 6, 2020 - 2:39 am

Thank you for reaching out to me and my team. Please reach out to us at mike@capitallendingnetwork.com. Looking forward to working with you and your family.

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Rhonda Singer November 6, 2020 - 3:49 am

I am interested in applying for a Non-Qualified Mortgage. My small business loss on my tax returns drastically reduces the annual income earned from my employer, $75K.
In addition, I will be signing on 2 tenants for rental income for the property in the basement apartment. I am trying to get approved for more home, i.e $600K. I can obtain an 18mos rental agreement and 1st month’s rent from my future tenants if needed. I am also interested in knowing if down payment assistance is available, the same I qualified for with a FHA loan. I live in zip code 80017 in Aurora, Colorado and I am trying to purchase a home in zip code 80132, Monument, CO. I have read many raving reviews about Gustan Cho Associates. I talked to Mr. Gustan Cho two years ago and he was so helpful and lost his number. I Googled Gustan Cho Associates and this website showed up.

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