Buying A Home
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Preapproved then denied
FI and I are trying to buy our first home. We were recently preapproved for a FHA loan. FI has an account in dispute on his credit report and we are working to change the status of that account. The mortgage company said we can't move forward because we might not be preapproved once the dispute is off the credit report.
Is this normal? How can we be preapproved and then un-preapproved? Will taking that account out of dispute status lower his credit score? Everything I have found so far says different things.
TIA!
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Re: Preapproved then denied
Odd. I don't understand how closing a dispute on your credit report would negatively effect you. Did you ask your lender to verify this?
I know when DH and I went to be pre-approved I had a medical collection show up that had been closed years prior. Our lender suggested I file a claim and have it removed to help my credit score. Thankfully, my credit score overall besides that one hit was very good so it wasn't a big deal and I was able to have the collection account closed and removed. My lender never said anything about having this collection removed adversely effecting us. It would only help.
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that doesn't really sound right. Can you try getting approved from another lender?
good luck
I'm so sorry. That doesn't even make sense. I suggest what quicksilver says, going to another lender!
Anything you can achieve through hard work, you could also just buy.
The account was disputed back in 2010 and nothing ever happened with it. If he has the company take it out of dispute status it will stay on his credit. I just don't see how we can be preapproved then have that taken back. I will be calling a different lender tomorrow.
Thanks everyone!!
Did you do that, and did it help at the moment with the house you were trying to obtain? I know you said you fixed it, but was wondering in what time frame was it corrected.
I kid you not, my husband had a written letter (which sits on the table right now), requesting to open a dispute with a CC company because of a hard inquiry made on his CC a couple months ago because the CC company couldn't reach him by phone, although we pay our CC bill on time every month, and my dh has been in good standing with them for over 10 years.
We are currently 20 days away from closing, and I would have died if he had sent that letter while I was at work, after having read this thread just today.
The actual guideline for this as specified in the HUD handbook that all DE underwriters must follow states that if an account is in dispute, it needs to be removed, new credit report pulled, and that credit report needs to be run through the automated underwriting system.
If you do not wish to remove the dispute, your loan will be downgraded to a manual underwrite, which means your housing expense can not exceed 31% of the income the underwriter uses to qualify you, and your TOTAL expenses can not exceed 43%. You will also need to furnish assets showing you have reserves for principle, interest, taxes, and insurance for 2 months (or underwriter's discretion).
Feel free to copy and paste the above info in your email with your loan officer, because that is the correct procedure.
I actually just sent the letter last week so I dont know the outcome as of yet. We are trying to buy a HUD home as investment property and have a while before it will even be available for us to purchase.
I would make sure the company the dispute is with knows when you are trying to close (and I might tell them it is earlier than you expect closing to be).
We were told after we were preapproved that we need to contact the company and tell them we no longer wish to dispute that account. We did that and we are now waiting on the letter confirming it. I asked of we could move to the next step hole we wait for the letter and he said no because we might not be preapproved. I didn't think our preapproved status could be revoked. Weird.
Current recommendation is 25-28% of your TAKEHOME pay for:
mortgage+PMI+insurance+taxes+utilites+HOA 30-35% in a HCOL area
Housing + all other debt (car loans, CC, SL etc) not more than 40%
For CC useage - keep under 15% of allowable limits for best rates - better to pay off in full each month.
Here's the thing. A pre-approval is not a guaruntee of financing. So even if they didn't pull the pre-approval you wouldn't qualify once you officially applied for the mortgage and it goes into underwriting. I think I would prefer to find out about this now then when your loan is in UW and you have sellers that are waiting for you to close.
The bolded makes NO sense to me at all. If you don't believe you owe it, why would you not dispute it? And why would that help out in the loan process? If you remove the dispute, then it will show that your H has more debt on his credit than he did before. I'm thinking the wires got crossed somewhere here with your loan person.
Also, if you look at your pre-approval, there will be language that says adverse changes in employment, credit history, etc. will be cause for them to revoke. Even our FINAL approval from the bank, a couple of weeks before closing, had conditions on it. So if you lose your job or open a bunch of credit accounts in between now and then, they can revoke the acceptance.
Anything you can achieve through hard work, you could also just buy.
There really isn't a hardfast rule about ratios for FHA unless it comes to manual underwrites (which includes a few other products, like FHA streamline refinances).
Generally, you get capped out around high 40% for housing expenses, and mid 50% for total debt to income ratio. It really depends, because again, its an automated system that is linked with your credit report and the feeds all qualifying numbers through it.