If youâ€™re an identity theft victim, getting a mortgage will be harder, but not impossible.
More than 17 million Americans -- seven percent of adults -- experienced at least one incident of identity theft in 2014, according to the U.S. Bureau of Justice Statistics. That number is sure to be higher today.
Identity theft is, unfortunately, a part of life in the information age. But mortgage lenders understand this fact and employ special guidelines in these situations.
Mortgage applicants do not have to forego homeownership plans due to wrecked credit, but proactive response to any incident is important.
Learn how lenders deal with identity theft, and know your options as you apply.Click to see today's rates (Sep 23rd, 2017)
To have any credibility as a victim, you have to report the incident to your local police and to the government.
For lenders to consider you an identity theft victim, you must:
Itâ€™s also a good idea to send your documents to all three major credit bureaus -- Equifax, TransUnion and Experian -- and place a fraud alert on your reports.
Lenders must personally contact you to ensure you are the one applying for credit,Â when a fraud alert is in place.
Once youâ€™ve established that youâ€™re an identity theft victim, lenders can â€śmanually underwriteâ€ť your loan file, rather than running it through a computerized automated underwriting system (AUS).
Manual underwriting means a human goes through your credit report and application line-by-line and applies â€śmake senseâ€ť guidelines. For example, if your credit history has no major blemishes prior to the identity theft, itâ€™s easier to make the case that youâ€™re a good risk.
The AUS, though, may not issue an approval due to poor, albeit erroneous, information.
Manual underwriting by a human allows lenders to be more flexible when identity theft is involved, but manually-underwritten loans often have tighter eligibility criteria.
For instance, the lender may require lower debt-to-income ratios or larger downpayments thanÂ they would if underwriting a file via the computerized system.
Still, a human-generated approval could be a good solution for well-qualified applicants.Click to see today's rates (Sep 23rd, 2017)
Most mortgage programs have minimum credit score requirements, and if they donâ€™t, the lender will impose them.
This can be a major problem:Â identity theft victims can see their credit scores plummet when the thief opens accounts and doesnâ€™t pay them.
Fannie Mae, Freddie Mac, and government mortgage agencies have different ways of dealing with the credit score requirements.
The U.S. Department of Housing and Urban Development, the overseer of the FHA program, says that applicants must include identity theft affidavits or police reports to dispute fraudulent charges.
The fraudulent accounts can then be excluded from the application.
Likewise, USDA loan guidelines state that lenders can exclude credit data that is â€śsignificantly inaccurate.â€ť
The agency instructs its lenders: â€śIf an applicant does not have a usable credit score in connection with their loan request, then the use of non-traditional credit references is acceptable.â€ť
Non-traditional credit reports are built manually and can include history from utility companies, landlords and other accounts that may not normally be reported to credit bureaus.
The Department of Veterans Affairs, administrators of the VA home loan program, do not state a minimum credit score for the program. This makes it easier for identity theft victims to get around an inaccurate score if their â€śrealâ€ť credit history is acceptable.
However, most VA mortgage lenders impose minimum credit scores. Youâ€™ll need to prove you were a victim of credit theft and also work to remove the erroneous information.
Conventional loan rule makers, Fannie Mae and Freddie Mac, also address identity theft situations.
Freddie Mac says, â€śFor a FICO score to be usable, it must be based on sufficient, accurate information. Too little information, or information that is significantly inaccurate, make the FICO score unusable for mortgage underwriting.â€ť
Fannie Maeâ€™s position is similar: â€śLenders are obligated to take action when contradictory, derogatory, or erroneous information would justify additional investigation or would provide grounds for a decision that is different from the recommendation DU delivers.â€ť DU, or Desktop Underwriter, is Fannie Maeâ€™s automated underwriting system.
Talk with your lender about your options based on the home loan for which you apply. There is a good chance there is a workaround available to you.Click to see today's rates (Sep 23rd, 2017)
Identity theft victims can end up paying higher mortgage rates, unfortunately. Thatâ€™s because for many programs, borrowers with better credit scores get discounted loan fees, while those with lower scores pay more.
Typically, government-backed mortgage programs are less likely to impose higher fees on lower-score applicants.
Applicants with diminished credit shouldÂ try a process known as a rapid rescore, which can raise your credit score by more than 100 points in days, not months or years.
If you have written proof that your derogatory credit history is the result of identity theft, you can ask your lender to use a rapid rescore.
Rapid rescoring is a service available only through lenders -- you canâ€™t initiate it on your own.
For $25 to $50 per account, a rescoring service will verify your accounts and remove inaccurate derogatory information, usually in just a few days.
You will need to gather all available documentation regarding the identity theft and submit it to your lender, who will then request the rescore for you.
Your cleaned-up report includes a score unaffected by the identity thiefâ€™s fraudulent accounts. If you need a mortgage in a hurry, and you have written proof that your bad credit history is invalid, this is probably the best way to get a mortgage after identity theft.
Mortgage rates are low, and itâ€™s an ideal time to take advantage of low payments, even if you are a victim of credit-related crime. Todayâ€™s consumer protections make it easier than ever to qualify despite erroneous credit information.
Get a quote from a lender now. No social security number is required to start, and your information is transferred securely to a knowledgeable lender who can answer your questions.Click to see today's rates (Sep 23rd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)