(Originally published June 6, 2010.)
As of June 1st, mortgage giant Fannie Mae is requiring lenders to pull an updated credit report on all borrowers, just prior to closing, in order to confirm that nothing has adversely affected the borrower’s qualifications. Although many lenders already pull second credit reports right before the closing, Fannie Mae (FNMA) now makes this mandatory across virtually all mortgage lenders and products sold on the secondary mortgage market. The June 1 changes are part of a new effort by FNMA to cut down on slipshod underwriting by lenders and fraud by borrowers.
Under FNMA’s Loan Quality Initiative, lenders are now required to confirm that all debts and liabilities incurred up to the date of the mortgage closing are included in the qualification process. The last-minute credit report will determine whether a borrower has obtained – or even shopped for – new debt between the date of the loan application and the closing. If borrowers have made applications for credit of any type – for furnishings and appliances for the new house, a car, a new credit card – the closing could be put on hold pending additional research by the lender. These last minute credit checks could result in a closing delay, pricing adjustments, or at worst, loan approval cancellations!
Additional debt could raise your debt-to-income ratios and jeopardize your approval. It could lower your credit scores, potentially affecting your interest rate. It could even reduce your credit scores below the minimum required for your loan product, effectively killing your transaction!
Therefore, if you are buying or refinancing a home, DO NOT apply for any loans or credit and DO NOT make any purchases on credit, between contract and your closing, without checking with your mortgage advisor first.
With guidelines and industry dynamics ever changing, it’s now more important than ever to have a quality team of advisors to guide you. Make sure your team includes a professional, knowledgeable, and competent Mortgage Planner, Realtor, and Real Estate Attorney. Otherwise your quest for a dream home could turn into a nightmare.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products and wealth-creation strategies.