What you don’t know about your credit report may haunt you

Does your credit report have skeletons hiding in the closet? Many are startled at what is lurking on their credit report when they’re getting ready to buy or refinance their home. 

If you’re a long-time subscriber to Mortgage Porter, you’ve probably read some of my tips on how to improve your credit score. Here’s a quick overview of five frightening credit report surprises.

Your on-line credit score may not be what it appears. Your credit report and scores are available on line by the “big three” credit bureaus.  However, don’t be fooled by your on-line credit score which probably is a different number than what a mortgage company (or other lender) will pull. Why? Basically, there are different scoring modules created for the end user (for example a mortgage company or if you’re buying a car).  

Credit inquiries lingering behind. Your credit report will reveal inquiries that were made over the past 120 days. Each inquiry will need to be addressed with a written letter explaining each inquiry and whether or not new credit was obtained. If new credit has been obtained and needs to be added to the loan application with the debt being factored into the debt to income ratios.

Co-signed college student loans. If you co-sign for your childs student loan debts (or any debts) chances are you may get to qualify factoring that debt into your ratios. This can sometimes be resolved if you can document your child (or whoever you co-signed the debt for) has made payments on their own for the last 12 months.

Charge-offs. Consumers often assume that because a debt has been “charged off” that they’re off the hook for the remaining balance, which typically is not true. Lenders will often treat the balance of the charge off that is on the credit report as a “collection” which will probably need to be paid off or resolved prior to obtaining a new mortgage.

Disputed accounts. You disagree with what is being reported against you on your credit report and do what most responsible people would do: file a dispute. Only to find out when you’re getting a mortgage, that the lender will not close on your transaction unless the reported dispute is removed. Torture! 

What may be buried in your credit report is just one more reason why you should start your loan approval process sooner than later.

If you’re considering buying or refinancing a home anywhere in Concrete, Fall City, Forks, Auburn (originally incorporated as the town of Slaughter) or anywhere in Washington state, I’m happy to help you!

How co-signing impacts qualifying for a mortgage

As a Licensed Mortgage Originator, I often see credit reports where the borrower has cosigned on a debt for a family member or friend.  You may be a parent co-signing on your child’s student loans to help them get a better rate, helping your brother buy a car by co-signing the lease or auto loan or perhaps co-signed on a family members mortgage so they can buy a home. They’re going to be responsible for the debt and making the payments and you’re helping them out. Often times, folks don’t realize how this good deed may impact them qualifying for a mortgage down the road.

If the debt you have co-signed, is not paid on time, it will impact your credit as if YOU are the one not making the payments. Depending on how recent and how severe the late payments were, this may possibly rule out any chance of you qualifying for a mortgage. Co-signing is a risk. The friend or family member you’ve helped out has no way of knowing in the future what their employment or health situation may be. Worse case scenario, you may find yourself liable for that debt.

If the debt you’ve co-signed is paid on time, the impact may not be as dramatic for qualifying for a mortgage as long as a few requirements can be met:

  • co-signed debt needs to have been made on time for the last 12 months; and
  • the party you co-signed the debt for needs to provide 12 months cancelled checks to document they have personally made the payments.

What if your sister has been giving you cash every month for the debt you co-signed? That debt will be factored into your debt-to-income ratio as your own for qualifying for your new mortgage. If there is not a significant track record (such as 12 months) showing the debt has been paid on time, it will most likely be factored as your debt for qualifying purposes.

If you are considering buying or refinancing a home and you have co-signed for a debt, you may want to:

  • see if your friend or family member can refinance the debt into their name, removing yours from the obligation; or
  • have your friend or family member start making the payments for their debt on their own with a check. Keep copies of the copied checks as you will need to document that the last 12 months of the debt was paid for by them and not by you.

It’s important to meet with a mortgage professional well in advance if you’re considering buying a home. If you’re buying or refinancing a home anywhere in Washington State, I’m happy to help you.