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Could a disputed credit account cause your USDA loan to be denied?

September 9th, 2016 by Sean Stephens

What are the unintended consequences of disputing an account on your credit report? Can a disputed account cause your USDA loan application to be denied?

Disputed accounts can have a major impact on USDA loan eligibility and along with it cause a high level of confusion.

In today’s short video we will cover how a credit dispute can affect USDA loan qualifying, along with potential solutions to help keep your transactions headed to the closing table.

Before we get started, don’t forget to download our USDA Blueprint for success with the link below. This is a great educational resource for the home buying process and designed for both homebuyers and Realtors.

Could a disputed credit account cause your USDA loan to be denied?

USDA guidelines require that when an applicant’s credit report indicates an account (tradeline) or public record has been disputed, a GUS underwriting recommendation of “Accept” may need to be downgraded by the lender to a “Refer” which would then require more stringent manual underwriting guidelines.

However, a downgrade is not required if certain conditions are met in regards to the disputed item listed on the credit report, such as:

  • The disputed trade line has a zero dollar balance, or
  • The disputed trade line is marked “paid in full” or “resolved,” or,
  • The disputed trade line is has a balance owed of less than $500 and is more than 24 months old

In this anonymous case study for a loan that we successfully closed, they had been previously denied by another lender for a disputed account.

However, as you can see this should not have been the case because the disputed account has a zero balance.

Florida USDA Lender

This unique portion of the USDA guidelines involving disputed accounts not only causes confusion for the applicant, but as you can see, can also cause confusion for lenders who do not regularly work with the USDA program.

Remember, in the event that none of the requirements can be met, the loan can still be approved, but under more stringent USDA Manual Underwriting Guidelines. The applicant also has the ability to have the dispute removed and then we can process a new updated credit report for underwriting review.

If you want to qualify for a mortgage but have questions regarding disputed accounts, my team is experienced with this scenario and we can help walk you through the steps on what can be possible, along with how to get the dispute removed if needed.

USDA loans are in the blood of my entire team. As an approved USDA Lender Metroplex Mortgage Services is proud to serve our rural communities.

Texas USDA Lender

800-806-9836 Ext. 280

Just call or email if you have any USDA qualifying questions, want to discuss a new scenario, or would just like to take advantage of our free 2nd opinion service which is great for those existing transactions

I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!

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