(Originally published June 12, 2010.)
I received an overwhelming response from last week’s Newsletter, “Don’t Buy That New Furniture Yet! FNMA Requiring SECOND Credit Check Before Closing.” (click here to read the article.)
Realtors and real estate attorneys have contacted me, expressing their concerns and asking how to protect their clients. Therefore, as an additional service to realtors and attorneys, I’ve addressed below the most common questions I’ve received:
- Is this credit requirement applicable to ALL mortgages?
As of now, it just applies to conventional mortgages sold to Fannie Mae. However, I suspect that Freddie Mac and FHA will follow suit.
- Could buyers use this second credit check as a way to sabotage their qualifications if they get cold feet and want out of the deal?
I suppose they can if they wanted to. However, if a realtor builds trust and a strong relationship with their buyer, has that buyer consult with a qualified Mortgage Planner early in the relationship well before they find a home, and coordinates activities with that Mortgage Planner to ensure that their client is happy, WOWed, and loyal, then the odds of working with a squirrely buyer are minimized.
Not sure how to accomplish this? Call me and I’d be happy to discuss how I cross-sell my realtor partners and help them develop strong relationships with their buyers (and sellers!), keeping them happy and loyal.
- Is there anything that can be added to the contract of sale to prevent a buyer from killing their own deal?
Most real estate attorneys place a mortgage contingency clause in their contracts of sale. However, if a buyer receives a commitment, and then the lender subsequently rescinds due to this second credit check, would the mortgage contingency clause still be in effect? Since the wording of this clause can vary from contract to contract and from attorney to attorney, it’s up to the attorneys to choose appropriate verbiage, as well as interpret how it can be enforced.
Subtle issues like this only reinforce the fact that buyers and sellers should be working with qualified real estate attorneys on their transactions. This would be a perfect example of how working with the wrong attorney could jeopardize a transaction and potentially cost everyone time, money, and aggravation.
If you don’t have a good real estate attorney on your team, please call me. I’d be happy to make a recommendation.
- Can anything else be done to prevent deals from falling apart?
Realtors and real estate attorneys should advise their buyers to consult a qualified Mortgage Planner before they find a house and NOT just after signing contracts. Buyers should be advised not to apply for any new credit until after they’ve closed on their home purchase. Buyers should be very cautious in utilizing their existing credit. In addition, I would respectfully suggest that attorneys consider adding a clause to their contracts to the effect of, “borrowers agree that they have not and will not apply for new, or utilize existing credit, to the extent that it might adversely effect their mortgage qualifications.”
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.