There are some changes coming to credit reporting guidelines, and it could help more people qualify for a home mortgage.
Already, qualifying for a home mortgage is getting easier each year. Guidelines are being loosened, debt-to-income ratios raised, co-signed debt is easier to disregard, and reserve requirements lowered. It’s worth noting, however, that guidelines are no where near as loose at they were in 2006, which is a good thing. Yes, it’s harder to get a mortgage today, but it should be.
Now comes a change to credit reporting which could help more people.
Currently guidelines state that if a borrower has an outstanding judgment or a tax lien, those items must be paid off before buying a home or at the closing table before they can get a new home mortgage. Lenders know about these items because they appear on their credit report and on the preliminary title report.
However, new rules state that if the company reporting the tax lien or the judgment doesn’t also have the borrower’s birthdate and social security number, then there isn’t enough proof that it belongs to that person and will no longer be shown on the credit report. This rule is to help provide an accurate credit report.
Fannie Mae has announced that if that tax lien or judgement doesn’t appear on the credit report AND it doesn’t show up on the borrower’s title report, then they will not require those items to be paid because they won’t know about it.
How does that help a borrower?
For instance, let’s say a judgment is showing up on John Smith’s credit report. Unfortunately, John has a common name, and his credit report frequently shows information that is not his – they belong to other people named John Smith. Under current rules, lenders would require our borrower to prove that the judgment is not his. How to you prove you don’t own something? It’s tough.
Now, with these new rules, the only way that judgment would show up on his credit report is if the reporting agency also has John’s birthday and social security number, thus proving that this judgment belongs to John.
If you’ve been turned down for a home mortgage before because of a judgement or tax lien showing on your credit report, contact us today to find out if these new rules could help you qualify to buy a home today.