When applying for a mortgage what applied a few years or even a few months ago simply will not get you a loan
You think that you have a Great credit score of 720 or higher and your loan should sail through be approved and you’ll be in your new home the first of next month. You’ve prepared your paperwork, sent in your documentation and your loan officer says everything should go smoothly and your file should be out of underwriting in a few days. Then as Emeril says “BAM!” your file isn’t even reviewed by the underwriter and you are declined and your application is dead in many cases. In some cases you can still get approved by going through a manual underwrite. Depending on the number of disputes and size of them manual underwrite may be the answer,
This is basically the scenario for Automated Approval Fannie Mae (FNMA), Freddie Mac (FHLMC), USDA and FHA. Yes, USDA and FHA Are impacted by this. You see USDA is a conventional loan and while it is guaranteed by USDA and underwritten by their own automated underwriting system called GUS lenders have adopted the Fannie and Freddie guidelines across the board including for FHA. The only exception is for VA loans. As a general rule the VA does not care about disputes.
In your letter you see a line that basically says there is an account that has been closed for years and it says “DISPUTED BY CONSUMER” or some other phrase that says DISPUTE or some variation of the word dispute. In a little known practice by mortgage giants Fannie Mae and Freddie Mac, documented in an article in the LA Times in October 2009, has swept through all faces of mortgage lending. Even though as the article points out that Fannie and Freddie would revisit the practice there has been no change in the practice and lenders have adopted the policies universally for ALL loans including FHA and USDA.
You may ask why if you have a really high score that you cannot get a loan. As the article points out “Mainly because credit repair companies have been gaming automated systems tied to credit scores by disputing accurate but negative items. When tradelines in a consumer’s files contain a “disputed” notation, most scoring software ignores them for the purposes of computing the score.” In short, the banks are tired of being taken to the cleaners by fly-by-night “Credit Repair Companies”
To Remove your Disputes you need to Contact the Credit Bureaus Directly
Mortgage lending is no longer what it was 2, 5, 10, or even 20-years ago it’s tougher. Even with a FICO of 800+ and 20% down a thing like this on your credit can result in you not getting a loan. The best thing you can do is to prepare and educate yourself before heading into the trenches.
As always if you have any questions don’t hesitate to call our office at (936) 228-1944
Henry Daniels – Sr. Mortgage Banker & CMPSI Certified Mortgage Coach