When you make a payment to a credit account, the information on your credit report is unlikely to change for at least a few weeks. In general, creditors and lenders report account changes, such as payments, on a monthly basis. Unfortunately, when you are applying for a mortgage, and the approval and terms of your mortgage depend on the information in your credit report, the most accurate information is essential.
So how can you ensure that your credit report is up to date and has the right information? In many cases, a mortgage lender may request a credit supplement or a real-time status update on essential items on your credit report. Here we dive deeper into credit supplements and how they can affect your credit score and the mortgage loan process.
Key takeaways
- A credit supplement allows lenders to get a clear, up-to-date look at entries on your credit report and can be the difference between approval and denial of your mortgage.
- Obtaining a credit supplement can cost the borrower between $10-$20 for each item that needs to be adjusted.
- If you wait for your credit report to update and reflect changes, it can take 30 to 45 days, whereas a credit supplement can often be completed the same day.
What is a credit supplement in a mortgage?
A credit supplement is not a tangible item but rather a process that a lender can initiate to acquire a clearer picture of accounts on a credit report in real time. For example, if, when going over your credit report, you mention that a debt collection has been paid off, but it is still reflecting a past due amount, a credit supplement is something that can provide real-time confirmation that this obligation has already been taken care of, despite the fact that it reports differently on the credit report.
Credit supplements do not come without a price. The borrower must pay for each required credit supplement at the cost of $10-$20 or more each. The borrower may be responsible for hundreds of dollars in fees if the lender requires multiple credit supplements.
Why is it necessary?
Because an initial credit report is run when you first apply for a mortgage, the loan process can take a month or more, and a lot can happen during that time. If there are items that need attention on your credit report, a lender may initially ask you to pay down specific debts or credit cards or pay off debt collections in order to present a better credit picture for the underwriters. Unfortunately, creditors don’t always update your credit report on the timeline necessary for your mortgage lender. When this occurs, the lender may require a credit supplement.
Some common examples of credit supplements can include:
- If a credit report shows collection accounts or judgments, a lender may require a supplement to show that these accounts have been resolved.
- Student loans on your report indicate a deferment but not a deferment date.
- In order to add to your credit file, a lender may want to add rental history to your credit file to show proof of timely payments.
How do credit supplements work?
Your lender must initiate a credit supplement and is not something you can request on your own. When a loan officer asks for a credit supplement, you must provide copies of any documentation related to the specific account, such as proof of payment resolution. At this time, the lender will set up a conference call with the credit bureau, the specific creditor, you, and your loan underwriter. At the start of the call, you will be required to confirm your identity and give permission to discuss your account and credit information. The underwriter will ask for specific information pertaining to your account, and the creditor will provide this in real time.
How long does a credit supplement take?
The time it takes to complete a credit supplement depends on the way it is completed. Supplements down in writing can take five business days. However, phone or online credit supplement requests can be completed on the same day, giving your loan underwriter immediate results.
How long does a credit supplement take?
The time it takes to complete a credit supplement depends on the way it is completed. Supplements down in writing can take five business days. However, phone or online credit supplement requests can be completed on the same day, giving your loan underwriter immediate results.
Is a credit supplement bad?
While being asked to provide a credit supplement from your loan underwriter may raise concerns, it does not necessarily mean there could be a problem with your application. In many cases, credit supplements are simply necessary to give clarification on specific items on your credit report. In fact, in many cases, credit supplements can provide information that will lower your debt-to-income ratio and improve the terms of your loan.
Being proactive can help you avoid the need for credit supplements
While credit supplements are not a bad thing, they can take time and affect the outcome of your loan application. Being proactive and understanding your credit report before ever applying for a home mortgage can help you present a clear and precise credit report without the need for a credit supplement. Before you consider buying a home, taking the time to pull your own credit report and clear up any information that may not be accurate, while also addressing any potential negative items on your report, can help speed up the mortgage process while also making you more eligible for better interest rates, lower down payments, and a swifter approval.
Navigating the home-buying process
At Hero Home Programs, we understand how overwhelming the home-buying process can be for borrowers. We strive to help borrowers find and purchase the home of their dreams. Our team members can help you navigate the mortgage process, including credit supplements, help ensure you are getting the best possible rates and terms, and walk you through to closing and receiving the keys to your new home. To learn more, schedule a consultation today.
