As discussed in part one and part two in our identity theft blog series, everyone is at risk of identity theft. But by learning how identity theft occurs, and staying alert for signs that it happened, you can create strategies that help prevent it.
Unfortunately, there is no one single tool or action (or combined strategy) that is 100% guaranteed to prevent identity theft.
You can still obtain a mortgage if you’re an identity theft victim
Mortgage lenders are aware that identity theft can occur to all of us, and have guidelines to work with customers who are identity theft victims.
While the good news is identity theft doesn’t usually prevent you from gaining homeownership, the bad news is it makes the process harder. Here are steps you can take and things you can expect if you’re an identity theft victim:
Gather official documentation verifying that you experienced identity theft
For a mortgage company to work with you after identity theft, they’ll require documentation showing you experienced identity theft and reported it to your local police and the federal government.
You’ll need to be able to provide your mortgage lender:
- A copy of your police report
- An affidavit of identity theft from the Federal Trade Commission
- A letter of explanation
You should also send this documentation to the three major credit bureaus (Equifax, TransUnion and Experian) and place a fraud alert on your reports. Once this fraud alert is in place, lenders are required to personally contact you to ensure you’re the one applying for credit.
Expect to have your loan file to be manually underwritten
A major part in any mortgage application process is underwriting. In 2017, most mortgage underwriters offer computerized, automated underwriting systems to help make the process faster and less labor-intensive.
As an identity theft victim, you can expect a mortgage underwriter to manually underwrite your loan file instead of using an automated underwriting system. This provides the lender more flexibility when identity theft is involved, in comparison to automated systems that may automatically reject the application.
While manual underwriting by a human can provide more flexibility, manually-underwritten loans can also have stricter eligibility criteria. For example, you may be required to have a lower debt-to-income ratio or make a larger down payment.
Your low credit score can bring challenges
Most mortgages have minimum credit score requirements. As an identity theft victim, your credit score is likely to have plummeted.
Getting approved for a loan with a low credit score caused by identity theft may require you to include identity theft affidavits and police reports with your application. You may also be required to submit a manually built credit report that includes your billing history with utility companies, landlords and other accounts that may not be reported to credit bureaus.
If you have written and documented proof that your damaged credit history is the result of identity theft, you can also ask your mortgage lender to use a rapid credit rescore. This service is only available through mortgage lenders and lets a “rescoring” service verify your accounts and remove derogatory information that damaged your credit.
Be prepared to work closely with your mortgage lender during this process.
Expect to pay higher mortgage interest rates
Unfortunately, as an identity theft victim, you may pay a higher interest rate. For many mortgage programs, borrowers with higher credit scores automatically receive discounted loan fees, while those with lower credit scores pay higher fees. Rapid credit rescoring may be able to help you receive a lower interest rate.
You can still buy a home as an identity theft victim
If you experienced identity theft, home ownership can still be in your future. Be willing and prepared to take the steps needed repair the damage, and be ready to work closely (and patiently) with your mortgage lender throughout the process.
If you experienced identity theft and want to learn more about your mortgage options, contact me today!