Don't Let Credit Checks Derail Buyers


Buyers may want to purchase furniture to outfit their new home prior to closing. But if they’re not careful, they could cause delays in closing or even lose their home loan.

Since 2010, mortgage giant Fannie Mae has mandated that lenders recheck a borrower’s credit prior to closing on a mortgage. If anything new arises in the credit re-check, lenders may want to delay the closing to verify the borrower can still afford the mortgage. In some cases, the lenders may even cancel the mortgage prior to closing, which could mean a higher interest rate on a new loan.

“We tell our clients about this upfront, and keep reminding them through the entire process not to go buy a new bed or a refrigerator,” says Michael Daversa, president and founder of Atlantic Residential Mortgage. “What you’re supposed to do is keep everything status quo.”

During the credit re-check prior to closing, lenders will scan for any new credit card accounts that have been opened as well as any new credit inquiries. For example, a credit inquiry from a car company may indicate to a lender that the buyer is in the market for a new car, which could send up a red flag if the buyer is going to take on more debt.

Fannie Mae’s maximum debt-to-income ratio is 45 percent—a maximum of 45 percent of a gross monthly income can be allocated for mortgage and housing expenses and other debt.

“It’s more of an issue for people on the cusp of approval where they just get in under the wire,” David Stein, the chief operating officer and a partner of Residential Home Funding, told The New York Times. “If someone was a 44 percent at the approval, if they incurred more debt at the credit refresh, and the debt goes over 45, we can’t close that loan.”

To avoid delays, lenders recommend that borrowers check with their lender before taking on any new debt. Borrowers should also notify any lenders about any changes in employment or job loss. Lenders will reverify borrowers’ employment status prior to closing, and even a change in the company’s name by the borrower’s employer has the potential to delay closing.

Source: “Pre-Closing Credit Checks,” The New York Times (July 5, 2013)

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