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

October 30, 2012 by Leave a Comment

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!

Filed Under: Credit Scores and Reporting Tagged With: , , , , , ,

Charge Offs: All is Not Forgiven

August 1, 2012 by Leave a Comment

Part of what I do as a mortgage originator is review credit reports. I’m often surprised how many consumers think that a debt that has been charged off means that it has been removed from their credit history or “forgiven”. Basically, a charge off is when the creditor is writing the debt off their books for tax purposes, it is not terminating the debt owed by the borrower. Often times, the charge off may turn into a collection or be sold or assigned to a collection agency and therefore, mortgage lenders will view a charge off on a credit report as a collection.

I while ago, “Betty Bellevue” called me to see if she could help her mom obtain a mortgage. A couple years prior, her mom had a car that she “gave back” to the bank. She thought she would only have a “repo” reflected on her credit report and that enough time had passed to where she might qualify for a mortgage. What she didn’t realize is that even though the bank had the car back, she had a “charge off” for the balance of the car loan on her credit and that for purposes of a mortgage, we would treat it as a collection (it would need to be paid off and removed from the credit report).

Distressed home owners with second mortgages may be surprised to find charge offs on their credit report following a short sale. Borrowers are often caught completely off guard by this remaining damaging debt being reflected on their credit report. Depending on how the lender reports the short sale to the credit bureaus, it may be just as detrimental as a foreclosure. If you are considering a short sale or foreclosure, I strongly recommend you find an attorney who specializes in dealing with this type of situation.  Linda Ferrarri has great information on her credit blog about foreclosures and short sales which I highly recommend if you find yourself facing this situation.

A charge off also dramatically impacts credit scores. Once a charge off, or collection is paid, credit scores will initially drop as the credit scoring modules view it as a “new activity” on the borrowers credit. Eventually scores should recover and improve. If you are considering a mortgage and have charge offs or collections, it’s important to discuss how and when you’re going to pay them off (some can be paid at closing which will prevent your scores from tanking during the mortgage process).  

You can obtain a free copy of your credit report at www.annualcreditreport.com.

Washington State’s DFI (Department of Financial Institutions) guide for home owners who are considering a short sale and Foreclosure Help.

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Shallow Credit can leave you in the Deep End when Qualifying for a Mortgage

August 5, 2011 by 2 Comments

Shallowcredit When in comes to qualifying for a mortgage, lenders are generally looking for borrowers who have established a history of paying their obligations on time. Ideally this would consist of four accounts that have been open and used for the last one to two years.  When someone does not have active accounts, or when their accounts are all new, their credit history appears “shallow” to some lenders. [Read more…]

Filed Under: Credit Scores and Reporting, First Time Home Buyer Tagged With: , , ,