Why Do Credit Disputes Have to Be Removed Before My Mortgage Can Be Approved?

This post has been a draft for almost a month, but I just couldn’t figure out the best way to present the topic.  However, at lunch with a few realtors yesterday, I heard a story that really highlights the importance of this topic within the context of a real estate transaction.

Dispute Dilemma

The realtor in this case was the listing agent and  was about to close on a home.  Just before they were to settle, a delay presented itself in the mortgage process.  From what I can gather, a credit refresh was done during a pre-funding audit, and a dispute was found on the credit report that wasn’t present in the initial credit pull as it had happened after the initial mortgage application.  Because a mortgage cannot close when a dispute is on the report, the real estate closing was delayed until the disputes could be removed.

You can read all about credit disputes here.  In a nutshell, it’s when a borrower believes information on his/her credit report (charge-offs, collections, late payments) to be inaccurate and contacts the credit bureaus to request an investigation.  At the end of the investigation, the information will be removed from the credit report if the creditor isn’t able to document the item in dispute.

The Problem

You may be thinking: What’s the big deal?  Why would this delay them from buying a house?  Here’s the problem:  When you dispute an item on your credit report, that item will not be allowed to harm your credit score while the item is being investigated.  Therefore, the credit score may not be accurate.

The Solution

If you are involved in the mortgage process, hold off on disputing items until you close on a home as getting rid of a dispute can be a difficult process.  If you do have disputes that need to be removed when you apply for a mortgage, your loan officer should have a third party resource to help expedite the removal process.

The Moral of the Story

When you are going through the mortgage process, you have to remember that up until you sign at the dotted line, financing is not a guarantee.  If anything in your employment or financial situation changes, your loan could fall through.  For that reason, it is important to make sure everything stays the same until you close.  Do not open new credit, dispute items, change jobs, etc. until you are holding the keys to your new home.

Have a question about qualifying for a mortgage to purchase a home?  Feel free to contact me for more information.



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