Imagine you’ve finally found your dream home and have put in an offer, and you’re declined—not due to anything you’ve done wrong, but because someone’s stolen your identity.
Sound far-fetched? Ever year, approximately 14.4 million adults are victims of identity theft, and many don’t even realize it until the financial scrutiny of homebuying brings the crime to light.
“Identity theft is on the rise, and if you don’t pay attention, you could have a harsh awakening when applying for a mortgage to purchase a home,” warns cybersecurity expert Sandra Estok, author of the “Happily Ever Cyber!” book series.
Typically, identity thieves steal personal information such as your Social Security number (usually by hacking into your email account, sometimes even from your trash) and then use it to open credit cards or loans in your name. The result?
“False charges on your account can deplete your funds and ruin your credit score,” Estok says.
Identity theft can also present problems with your debt-to-income ratio and with getting title insurance, since any outstanding debts in your name could make you flat-out uninsurable.
Due to this new threat, part of prepping for a house hunt today should be to take steps to safeguard your financial reputation preemptively, and to repair damage if it’s already been done. Here’s what homebuyers need to know.
How homebuyers can prevent identity theft
“One proactive step to take before putting in an offer, or even before you consider looking at homes, is to review your credit report at annualcreditreport.com or directly with all three major bureaus—Equifax, Experian, and TransUnion,” says Estok. “Each of these companies maintains a separate report that can give you clues if something doesn’t add up.”
What you want to pay attention to are the sections that have to do with your payment history and open lines of credit, so you can spot any errors or suspicious activity.
Estok also suggests that you set a regular schedule to check your credit reports and bank statements.
“There is a 60-day window to report suspicious activities in your account during which financial institutions may restore the illegal spending. After this period, you may be liable for the full amount stolen,” says Estok. If you are regularly monitoring your financial accounts, you are more likely to catch anomalies.
Many credit cards also offer enrollment in fraud detection programs, which enable you to be alerted to any atypical spending. You could also enable alerts for all financial transactions.
“The easiest way to catch if something is happening in your financial accounts is to activate text or email messages every time a transaction is done, or someone logs in to your account,” says Estok. “You can either visit your bank website to activate these alerts, or contact your bank representative directly for further assistance.”
Another important step is to visit the site haveibeenpwned.com to check if your email or phone has been involved in a data breach. If your email has been affected, Estok suggests replacing any passwords you used with passphrases—which are short sentences that are simple to remember, but not easy to guess. An example of a good passphrase would be “IfeelHappy@tmyNEWh0me” because it also replaces letters with numbers and special characters to make it even harder to crack.
What to do if you’re a victim of identity theft
“Some people may find out that they are victims of identity theft before placing a bid on a house, when the underwriters for their mortgage evaluate their credit application and pull their credit score,” says Estok. “Others may find out after the offer is placed. Whatever the timing, the sooner the victim takes action to report and repair their identity, the higher the possibility they can continue the process of buying a home.”
One thing to know is that there are different types of identity theft.
“The ones that directly impact the purchase of a home include tax identity theft, Social Security identity theft, financial identity theft, and medical identity theft,” says Estok. “Each of these types will affect your credit score because this cybercrime will result in unpaid bills, debt from loans, and balances due on credit lines, even though they are not legitimately yours.”
Recovering from identity theft is a lengthy process, and the time to recover will depend on the severity and type of fraud. But overall, the quicker you react, the better.
One of the first things you should do the minute you confirm identity theft is freeze your credit with all three credit bureaus, as this will help you prevent further damage.
Estok, who was a victim of identity theft, actually keeps her credit permanently frozen. Then, you can unfreeze it when you need to (like when a lender needs to access your information to help you qualify for a home loan) and then refreeze it once you’re done.
“It is an additional step, but I like that I have control of when I allow access to my credit while also protecting myself from cybercriminals affecting my credit score,” says Estok.
In almost all cases, it’s wise to file an identity theft report with your local police and file a report with the Federal Trade Commission. There are also guided steps you can follow for how to report identity theft on USA.gov.
Finally, gather evidence—like past-due bills you don’t recognize, collection entries in your credit history, unauthorized charges on your bank accounts, or even social media impersonations—to prove you are a victim of identity theft. You will likely need to submit these to your financial institutions and also your credit lenders as you work to repair your record.
How to recover after identity theft
While fully recovering from identity theft can take years, this does not mean that your homebuying dreams have to stay on hold the whole time. First, keep checking your credit reports to see if your fixes have gone through and are reflected in a higher credit score. Once that happens, you should be ready to resume your house hunt and apply for a mortgage, although there are still some added precautions you’ll want to take.
For instance? While routine mortgage applications often undergo an automated underwriting process, problems with identity theft may remain on your credit report for years (even if your credit score has improved). As such, it behooves identity theft victims to ask lenders for manual underwriting, which would give you a chance to explain to a professional what’s happened in your credit history so any crime-related issues can be taken into account.
Plus, even with lenders, it’s important to stay alert to any potential security issues.
“When selecting a lender, the security and privacy of your information is as important as getting the best interest rate,” says Estok. “Ask them how they will protect your information. After you purchase the house, will they securely store your files, or would they shred documents that aren’t needed? Would they share your sensitive data with a third party?”
It is equally important to validate with your real estate agent, mortgage lender, and any other party involved in your home purchase how your financial documents will be shared. While transferring paperwork in email attachments might seem safe, it is far better if you add another layer of security such as encryption.
“Request a secure option to manage the transfer of your sensitive documents, or do it in person if possible,” says Estok. When sending your information electronically, it is best to use a Wi-Fi network you trust like from home (rather than at work or a coffee shop).
Also consider creating a dedicated email account to use for your home purchase.
“This will help you respond to inquiries promptly and reduce fake emails,” says Estok.
If you are unable to purchase a home as a result of identity fraud, there are places you can go for help, which you’re entitled to under the Fair Credit Reporting Act.
“Consider consulting a consumer protection attorney at the National Association of Consumer Advocates or your state attorney general’s office,” suggests Estok.
Learn more on Realtor.com
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