The Skinny On Disputes

Did you ever have something on your credit report that wasn’t yours?  Or maybe it was yours but the information was being reported wrong?  You would think your first line of action would be to call the creditor and “dispute” the inaccurate information.  The whole idea is to have a credit report that shows your ability to pay on time and have a score that shows you’re a responsible person!  You don’t want anything negative on there and these days disputes can be just that.  Though you’re trying to better your credit situation, you are actually making it harder to get financing.

If you are thinking about purchasing a home soon, you’ll want to play it safe and not dispute anything.  If you already have disputed an account on your report, regardless of what the dispute consists of, your loan guidelines just got sterner.  This has been a BIG issue lately for people getting home loans.

So what do we mean by more stern?  Most loans today are run through and approved by an automated underwriting system (AUS).  Your loan file will still be reviewed by an underwriter but it’s a much easier, streamlined process.  If you have a dispute on your credit report your loan will be downgraded to a manual underwrite.  This means that, no matter what the decision was through the AUS system, it now has to be reviewed in depth and documented in depth in order for an underwriter to make a decision.

The biggest factors coming into play are:

• Your debt to income ratios cannot exceed 31/43%.  This means that you cannot spend over 31% of your gross monthly income toward your house payment or over 43% of your gross monthly income toward your house payment and other monthly debts.  This is a steadfast rule and does not allow for any exceptions.
• You must have 2 months of total mortgage payment in reserves left in your bank account after closing.  This can include retirement funds.  But for most first time home buyers coming up with the down payment and closing costs is hard enough, now you have to have 2 months saved in the bank.
• Your rent or mortgage payment history over the last 12 months will need to be verified and there cannot be any late payments.

If your lender has already pulled your credit report and there are disputes, even “dispute resolved” on your report, then you might need to “un-dispute” them with the credit bureaus.  That process in itself is both frustrating and time-consuming, so be prepared and make sure you document, document, document.