5 Surprising Missteps That Sabotage Mortgage-Seekers

Your mortgage application could be rejected automatically simply because you’re disputing a charge on a credit card.

By Scott Sheldon

While credit standards have somewhat loosened up in home lending, make no mistake, getting a mortgage these days still requires scrutinizing your complete financial picture — especially your debts and your current credit standing. Here are the five most common credit mistakes that could throw a wrench in your mortgage process.

1. Disputing Credit Accounts

The Action: The consumer has a disagreement with a particular creditor and takes action by disputing with the creditor a charge, balance, payment or any aspect of the credit obligation. The creditor then places the account in the dispute status, changing the credit reporting to “in dispute.”Why It’s an Issue: Mortgage lenders use what’s called an automated underwriting system, AUS for short, which is an algorithm that reviews a borrower’s total on-paper financial picture. The automated underwriting system used by lenders literally ignores any accounts in dispute. As such, the results of the automated underwriting system are flawed, because while the account is on the credit report, the algorithm ignores it because the account is in dispute. In other words, because it doesn’t provide an accurate rating of 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 gets approved in the system. If the loan does not get approved at this time, changes to the loan structure might have to be made, such as switching loan programs (from conventional to FHA, for example), reducing the loan amount or increasing the credit score.

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