Why Disputing Credit Accounts May Stop Your Home Purchase

What Are Disputed Credit Accounts? *Credit Accounts (that report on the credit report) in which there is disagreement about any material item like balance, interest rate, payments  are most common, any aspect of the agreement between a borrower (creditor) and lender (debtor). Includes:

  • Disputed Charge-off Accounts (charge off shows a due debt, but no payment due)
  • Disputed Collection Accounts
  • Disputed Accounts with late payments in the most recent 24 months
  • Can include any other credit account with “Dispute Status” reporting on the credit

Consumers dispute accounts to improve their credit score, clean up their credit history or to improve their credit picture in most cases. Disputing an account is a measurable action to take successfully combat theft or fraud. In such a scenario, the disputed credit account has no negative bearing with the mortgage lender. However, when the shoe is on the other foot and the disputed credit account does belong to the consumer, things can become problematic during the escrow process if not handled correctly.

Disputed Credit Accounts Automatically Become A ‘Red Flag’ When Buying A Home Home loan lenders are concerned with disputed credit accounts because of the future possibility of more payment liabilities which could impact the consumer’s ability to repay the loan. As such, disputed accounts must be removed from the dispute status before you can seal the deal with the home purchase. Mortgage Tip: Oftentimes, it can be handled with a simple call to the creditor to remove the disputed status.

Disputed Debts Can Open More Questions Dispute credit accounts may lead to more cash to close on the house. Here’s why… mortgage broker will take the position -that if the total cumulative balances of the disputes credit accounts is equal to or greater than $1,000 the debt will have to paid to zero in order to remove the dispute status.  For example if a consumer has $6,000 in disputed credit accounts, they can settle for x amount as long as the creditor reports “no longer reported as disputed”. This action will satisfy the lending risks in issuing purchase money financing. If the dispute accounts are less than $1,000- mortgage broker will require the buyer to contact the creditor to change the reporting status from “account in dispute” to “no longer reported as disputed.” Home Buyer Credit Tips:

  • Remove all dispute status on all credit account before applying for mortgage
  • If you have not found a home yet, before home searching, see if any accounts need to be zeroed out, this can be accomplished with your lender and copy of your credit report from a financial services provider
  • If possible avoid disputing any credit accounts (other than theft or fraud) if even checking to see how much you house you can afford

Thinking about buying a home? Once know how much you can qualify for? Start here with our mortgage qualifier calculator  or get a free home loan quote.

Posted in:

RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

How hourly wages impact mortgage loan approvals

How hourly wages impact mortgage loan approvals

Are you dreaming of owning your own home but finding it challenging to secure a…

how to buy a home from family without needing any cash

How to buy a home from family without needing any cash

Have you ever considered buying a house from a family member? It’s a unique opportunity…

Why you should wait for your credit to improve before applying for a mortgage

Why you should wait for your credit to improve before applying for a mortgage

In the current consumer landscape, securing approval for a mortgage is a significant challenge. It’s…

Here's a strategy to buy a home and set up a future refinance

Here’s a strategy to buy a home and set up a future refinance

For families looking to purchase a home, good news has arrived interest rates are slowly…

View More from The Mortgage Files:

1 Comments

  1. […] the true credit picture, the borrower would have to call the creditor and remove the account from dispute status, then the lender reruns the automated underwriting to ensure the loan “approves”. If […]



begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!