How disputing credit accounts may stop your home purchase
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By Scott Sheldon  February 14, 2014 12:00 am

What are disputed credit accounts? They are credit accounts that report on the credit report in which there is disagreement about any material item such as balance, interest rate, payments  are most common, any aspect of the agreement between a borrower (creditor) and lender (debtor). 

This 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; and it can be 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 improve their credit picture in most cases. 

Disputing an account is a measurable action to take to 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. Disputed credit accounts may lead to more cash to close on the house. Here’s why. The mortgage broker will take the position that if the total cumulative balances of the disputed credit accounts is equal to or greater than $1,000, the debt will have to be 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 a certain 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, the 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.”

The following are some home buyer credit tips.

• Remove all dispute status on all credit accounts 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 house you can afford.

 

Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.

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