Delaware Valley Real Estate - OnPoint with Letitia Stevenson

Home Buyers:  Avoid Newly Acquired Debt and Existing Credit Usage Prior to Closing

Lenders Pulling Second Credit Reports Under New Fannie Mae (FNMA) Loan Quality Initiative (LQI):

Effective June 1, 2010, FNMA now requires lenders to check borrower's credit report just prior to closing to determine if the borrower's credit situation has changed since the date of application.

What this means to you, the home buyer, is that right before loan closing, the lender will request a "soft pull" on your credit report to verify that you have not increased your credit card balances, opened new accounts, incurred any late payments, new inquiries, etc.  Any new debts or derogatory credit information on your report may impact your loan approval and closing date which may result in your file being re-underwritten, your loan terms being restructured, the closing being delayed, and, in the worst case scenario, your loan being denied. 

It's extremely important during the home buying process, especially between application and closing, that you maintain your credit as it stands when applying for the mortgage. Remember: The loan approval is based on statements of income and liabilities at the time of loan application. Any changes prior to closing could result in your deal not closing on time, or at all.

Four (4) Tips to Help Prevent Your Home Purchase From Being Delayed or Falling Through:

1. Avoid incurring NEW CREDIT INQUIRIES. It could signal to the lender that you have additional credit not yet reflected on your credit report or disclosed on your loan application. The lender will most likely require you to write a letter explaining any inquiries including documenting any new debt incurred as a result of these inquiries.
2. Avoid NEW DEBT. Refrain from buying a car, applying for new credit cards, applying for store charge cards, etc. An increase in debt changes your debt-to-income ratios which could cause you to qualify for less, exceed Fannie Mae's guidelines, etc. Also, additional debt could reduce your credit score which may result in you paying higher interest rates or not qualifying for a loan, especially if you have a borderline credit score.
3. Avoid INCREASING BALANCES on existing accounts for similar reasons mentioned above. Refrain from taking advances on HELOCs, charging purchases on your charges, etc.
4. Avoid DELINQUENCIES. Pay all accounts on time and as agreed including your existing mortgage.

If you have any real estate questions, please contact me. Whether buying, selling, or just curious to learn more, I'm here to assist you.