Could Identity Theft Keep You from Buying a Home?

Picture the scene. You’ve just found the perfect home and are ready to make an offer. You apply for a mortgage only to have it be denied, not because of anything you’ve done but because someone has stolen your identity. It might sound like a one-in-a-million chance, but approximately 14.4 million Americans are victims of identity theft every year. Most are completely unaware it has happened until the financial scrutiny of homebuying brings it to light. All it takes is for a thief to access your banking details and social security number. Once they have that, they can open accounts in your name, spend freely, and destroy your credit score.

A bad case of identity theft can also cause problems with your debt-to-income ratio (DTI) and getting title insurance. Due to this, anyone preparing to start house hunting would do well to ensure their personal information is protected. Below, we cover how to do this and what you can do to recover from identity theft.

How Does Identity Theft Happen?

To prevent identity theft, you first have to understand how it happens. While the methods criminals use to steal your identity are constantly evolving, most of them are the following causes.

1. Lost or Stolen Personal Documents

While many of us keep most of our personal information online these days, a lot of identity theft still occurs the old-fashioned way; lost or stolen personal documents. Simply losing your wallet could give a thief access to an abundance of personal information about you. For instance, credit cards, driver’s license, and maybe even your Social Security number. Beyond losing your wallet, other ways a thief can acquire your personal information include:

• Digital Devices – Smartphones, laptops, tablets, and other digital devices can be thieves’ treasure troves of personal information. Secure your devices with strong passwords and security software.
• Mail – Many sensitive documents travel through the mail—for example, bank statements, checks, tax documents, and pre-approved credit offers. Keep your mail secured by using a locked mailbox.
• Trash – Thieves usually have very few qualms about dumpster diving. Never take the risk of throwing anything without shredding first.

2. Insecure Online Data

The digital era has brought many new conveniences but also new vulnerabilities. Older generations have a tough time with this, which tech-savvy thieves often exploit. When using a digital device that’s connected to the internet, always be cautious of the following:

• Unsafe Connections – Never use the internet without a firewall and antivirus software, and it’s your first line of defense if anyone tries to hack your system.
• Insecure Websites – If you find yourself on an unfamiliar website, especially one with a payment processing page, check that the site is secure and legit. A padlock symbol should be next to the web domain address, with HTTPS domain security.
• Password Security – Don’t use easy-to-guess passwords or apply the same password across multiple websites.
• Phishing – Beware of unsolicited emails from unknown senders. Check the sender’s email. If it doesn’t look legit, then it’s probably a scam. Do not click any links in these emails!
• Doxing is when a cybercriminal hijacks your system and holds it to ransom unless you follow their directions. Please do not give in to their demands. Instead, take your device to a trusted repair shop that can fix the problem.

3. Company-Wide Data Breaches

Data breaches result from hackers accessing a company’s files and can result in tens or hundreds of thousands of people having their personal information leaked online. Recent years have seen this become one of the leading causes of identity theft. Recently it’s become a hot topic due to several high-profile breaches, such as the 2019 Facebook data leak. Data breaches can result in victims getting their names, email addresses, and passwords leaked online. At their worst, it can also mean revealing your credit card numbers and social security number.

How Homebuyers Can Prevent Identity Theft

Before making an offer on a home or even starting your home search, it may be prudent to request a credit report. You can do this through a third party like annualcreditreport.com or one of the three major credit bureaus – Equifax, Experian, and TransUnion. You are entitled to one free credit report every 12 months from each of the three major credit companies.

Do carefully read your credit report, paying special attention to your payment history and open lines of credit. Anything that looks suspicious or unfamiliar should be immediately reported. Ordinarily, you have only a 60-day window to report any false charges. Any failure to report a suspicious transaction within 60-days will typically mean you are entirely liable for the stolen amount. Your financial institution will usually refund the stolen money once they have conducted an investigation.

One of the easiest ways to prevent credit card fraud is to set up several contingencies. For instance, set up an alert system for any atypical spending. You could even consider enabling alerts for all your financial transactions. Contact your bank in person or online to see about setting up a text or email alert system. Stay informed about significant data breaches and change your passwords if you believe you’ve been affected.

What To Do If You’re a Victim of Identity Theft

Many people realize they are victims of identity theft before they place an offer on a home, usually after the underwriters for their mortgage application pull a credit report. Others may not find out until after the offer is placed. Whatever your situation, the sooner you report the fraudulent activity, the better your chances are that you can repair the problem and continue with the home purchase.

Keep in mind that there are different forms of identity theft. The ones that can most directly impact your ability to buy a home include tax identity theft, Social Security identity theft, financial identity theft, and medical identity theft. These can affect your credit score, resulting in unpaid bills, loan debt, and open credit lines. Your priority in confirming you’re a victim of identity theft is to freeze your credit with all three credit bureaus. Doing so will prevent any further damage. Next, you’ll want to make a police report and file a report with the Federal Trade Commission. You can also follow guided steps on USA.gov.

Lastly, gather all the evidence, such as past bills you don’t recognize, collection entries in your credit history, and suspicious charges on your bank account. All of this will need to be submitted to your financial institutions so that they can conduct a full investigation. There’s a good chance you’ll also have to work closely with your credit lenders to repair the damage.

Life After Identity Theft

In a best-case scenario, you should be able to repair all the damage and proceed with your home purchase. However, bad identity theft cases can follow you for years and impact future purchases. When applying for future loans, request manual underwriting and ensure your lender knows about your past identity theft issues. Automated underwriting processes often fail to detect past identity theft cases, even if your credit score has improved.

You should consult a consumer protection attorney in extreme cases where you can entirely purchase a home due to identity theft. One can be found through the National Association of Consumer Advocates or your state’s Attorney General’s office.

Take all the security steps mentioned above and ensure your data remains protected during future purchases. For instance, ask your real estate agent, lender, and attorney how they will share your sensitive financial documents? Any online document transfers should be fully encrypted and only be done over a secure WI-FI network. It may also be wise to create a dedicated email account for handling all real estate purchases.

Final Thoughts

Identity theft is one of those things that you think you’re immune to until it happens. Take your security seriously and stay informed about significant data breaches and online scams. In most cases, scammers are only looking for easy targets, so you should be able to avoid the worst with a few basic security precautions.