Sunday, July 14, 2013

Mortgage Approved Than Denied - Credit Rechecks

Waiting to close on a mortgage? You should avoid doing anything that might alter your credit picture until after the documents are signed and the money is delivered.

Some borrowers assume that the lender is satisfied with their financial status once their loan has been approved. But since 2010, Fannie Mae has required lenders to recheck a borrower’s credit right before closing the mortgage. If new liabilities pop up, the loan may be delayed or even denied.

It seems reasonable enough that if you’re buying a home, you might want to buy a new flat-screen TV in time for move-in day. But if your purchase shows up as a new credit card account with a $3,000 balance, the loan might be sent back to underwriting in order to redo the calculations.

Mortgage lenders are also on the lookout for new credit inquiries. A credit inquiry from, say, Toyota signals that the borrower is probably going to buy a car — that is another red flag.

The maximum debt-to-income ratio allowed by Fannie Mae is 45 percent (meaning that a maximum 45 percent of your gross monthly income can go to cover debt, mortgage and housing expenses).

It’s more of an issue for people on the cusp of approval where they just get in under the wire. If someone was a 44 percent at the approval and they incurred more debt at the credit refresh, if the debt goes over 45, it probably won't close.

Credit recheck can cause problems for working couples when only one spouse is named on the loan, usually because the other spouse has a low credit score. Basing the loan on one spouse’s income instead of two means the lender will see a higher debt-to-income ratio. Because the bank isn’t seeing both incomes, a rise in debt could cause problems with their loan before the closing.

Avoid any new purchases until after the loan is closed and funded and you can avoid a lot of grief.

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