Congratulations! You found your dream home at a price you can afford. Your income and credit scores are high. Your debt level is low. No problem getting that loan approval, right?
However, your credit report could contain certain items that may not be seriously hurting your credit scores — and may even be helping them — but can “really slow down the mortgage process,” according to David Kanis, a mortgage lending veteran at Fairway Independent Mortgage with more than 20 years in lending experience.
“You cannot imagine all the problems that can happen when any of these items show up on a credit report,” Kanis says.
And if these items are on your credit report, you’ll need to resolve them if you want to go forward with your mortgage, but it could cost you. Charges of $30 per account, per consumer reporting agency (CRA), are typical for rapid rescoring — and can get expensive when multiple items need fixing across the three national CRAs: Equifax, Experian and TransUnion.
Kanis has shared some of the most common credit reporting land mines that can virtually stop a mortgage in its tracks:
1. Disputes. Because disputed credit accounts are bypassed by some credit scoring calculations — due to the fact that their accuracy is being questioned — and because mortgage lenders must be able to confirm the accuracy of any disputed accounts and ensure that all accounts are included in the credit score, any disputed items must be resolved prior to obtaining loan approval. This can be particularly problematic when trying to close a home loan quickly, as disputes typically take about 30 days to resolve.
2. Inquiries. All credit inquiries within the past 120 days must be documented and explained. According to Kanis, an inquiry for “a new installment loan taken out, such as a new mortgage or auto loan, can be a nightmare. Not only does the borrower have to provide a letter of explanation regarding the new loan, along with documentation of the payment terms and conditions, she may also be required to call in and be interviewed by the (oftentimes less than user-friendly) factual credit reporting companies used in the mortgage industry.”
3. Public records. Unpaid judgments and tax liens must be paid off at or prior to closing — regardless of how or why they occurred. And in addition to documenting that the funds used to pay the judgment or lien have not been borrowed, the requirements for your proof of payment can also be strict. Kanis has seen “borrowers pay judgments, only to find that the proof of payment from the county courthouse did not have all of the exact numbers as on the credit report, resulting in borrowers having to obtain new satisfactions of judgment.”
To avoid the panic these and other credit reporting surprises can bring on when in the midst of an already stressful home purchase, make sure you diligently review your credit reports for accuracy at least six months before applying for a mortgage. A great one-stop resource for this information is AnnualCreditReport.com, where all U.S. consumers are entitled to one free report from each CRA annually. And if you’re looking for an overview of what might be hurting your score, Credit.com’s Free Credit Report Card can show you the major factors impacting your score and where you stand on each one.