It makes most of us cringe at the mere possibility of it — identity theft. Unfortunately, nearly 1 in 15 Americans will becom victims of it. Most discover that it has happened to them when their credit is pulled, and they notice something suspicious.
Indeed, identity theft can even negatively affect your mortgage application. Here's how identity theft affects your home loan, and the steps you can take to help you get approved despite the fraud.
There are many types of identity theft. While all are serious, only one can really hamper getting a home loan. With financial identity theft, a criminal is using your identity to get approved for credit. While a $300 shopping spree probably won't affect your ability to get approved for a mortgage, it could lower your credit score and change the mortgage rate you qualify for.
However, fraudulent charges of thousands or tens of thousands of dollars are sure to halt your loan approval and here's why:
Part of getting approved for any loan is demonstrating that you can be trusted to pay it back. Essentially, that's what a credit score shows. The higher the score, the more financially responsible you appear to be, and the more lenders will trust that you can and will pay back the loan.
So when it comes to mortgage approval, you can imagine how much weight your credit score carries. And if your credit shows that you have a $12,000 debt that's currently in collections, that's a red flag that no lender wants to see.
Home loan denied. Well, for now, anyway.
Fortunately, that's not the end of the story! While it is not a fast process, there are steps you can take to help clear up the crime from your credit history and get back on the road to home loan approval.
The first thing you want to do is report the crime to the police. You'll also want to file an affidavit with the Federal Trade Commission. Sometimes, a copy of the police report and the affidavit is all that the underwriter needs to move your application towards approval. Unfortunately, even with proof of a crime and loan approval, your rate may remain on the higher end of the scale because rates are determined when you first applied for the home loan.
Here is where we come to a fork in the road. Do you accept the higher rate and move forward with the home purchase? Or wait until your credit history is cleared and start the process all over again?
Both options have their advantages and disadvantages.
If you decide to purchase now, you'll have the certainty of buying in the current favorable conditions. Your rate may be high now, but then again, it could be high later too. The market is changing all the time, and no one can predict what your future rate would be.
However, if you decide to take the extra steps to clear your history and wait to purchase, you'll have the peace of mind that you are getting the best rate based on your actual credit score. Your rate may also be lower than it was the first time around, possibly saving you thousands of dollars over the life of the loan.
Identity theft isn't something that's fixed overnight. After you've filed a police report and an affidavit with the FTC, you still need to submit copies to the credit bureaus. This will trigger an investigation and should also stop them from showing the fraudulent info on your report. The time it takes for your report to be completely cleared varies quite a bit. It can take as little as weeks, but in some cases, it has taken years.
We hope that you are never a victim of identity theft, in any form. However, know that there is light at the end of the tunnel when it comes to buying your dream home even if this does happen to you. Do you know what rate you qualify for? Contact Midwest Lending today to see how low your rate can be!