Well it seems that loan officers like to get people to sign that loan application to lock in a rate in advance of meeting all the new regulations. This seems to be the new strategy.
Under the current regulations including the Dodd-Frank Act, if you have unpaid non-medical debt on your credit report it will need to be settled in advance of funding from anyone other than a private lender. The Underwriters will be made to be the bad guys in this requirement.
If you have any Charged-Off Account(s) with a balance, and it is indicating a dispute, you have two-strikes against you. A disputed record is removed from the calculation of your FICO Score; sounds good, huh? Well since the mortgage melt-down lenders are not able to fund a mortgage if there is a single record indicating a dispute, and the balance is considered immediate debt load in the calculation of the debt to income ratio (D/I) of the applicant(s). D/I including the Principal, Interest, Taxes Insurance (PITI), and PMI if required, on the planned purchase or refi, can not exceed 43%, so you can see how a Charged-Off debt of only $500 can keep you from qualifying for a new mortgage.
Understand that medical debt does affect your score in the long run, and needs to be considered when you apply for that home loan.
If a Loan Officer explains to you that you only need a 620 score, or lower, to qualify this should send up some red flags about their intentions? You should work to obtain a credit score of at least 700 in advance of applying to save thousands of dollars over a very short period of time. See my Credit Score/Mortgage Analysis spreadsheet for further understanding; in this example, the difference between a 620 and 700 score, the borrower will give the lender $15,490 more in the first ten years of the mortgage.
At Austin Credit Group we are all about raising credit scores as quickly as possible!
Thank you to Tracey Day for his contribution to this post.