You know by now that getting a mortgage loan in 2010 is far more difficult than getting a loan in 2005 was.
You have to provide so much documentation that you might feel there’s no end to “One more piece of paper.” And that just gets you to the initial approval. It doesn’t get your loan closed.
Under the terms of the Loan Quality Initiative, which went into effect June 1, 2010, lenders are required to track “changes in borrower circumstances” between application and closing.
If your circumstances change, even slightly, your loan can be denied outright, or sent back to underwriting for a second review.
Why is this happening? Because Fannie Mae is holding lenders accountable. Should you take out a new mortgage loan and later miss some payments, Fannie Mae will look back at your loan, and your credit history. If they discover that you took on new debt just prior to closing the loan, they can make your lender buy back the now-delinquent mortgage.
Of course lenders aren’t going to take chances, so they’ll make sure that your circumstances are the same or better on the day of closing as they were on the day you made application.
To you as a borrower, that means not opening any new credit accounts for any reason, not adding to your outstanding balance on any existing card, and not depleting your checking or savings accounts. To be on the safe side, you should discontinue all of these activities least 30 days before making your mortgage loan application.
Why? To give your creditors time to make their reports to the credit bureaus before your mortgage lender checks for the first time. If you charged a new refrigerator on the 15th, the added debt might not appear on your credit report until the 30th. So if you make a loan application on the 20th, it wouldn’t show up. But when the lender pulls a final credit report just prior to closing, it would be there.
While the Loan Quality Initiative is new, denying a loan at the last minute because of foolish mistakes is not.
I recall a young couple a few years ago who had been trying to buy a home. Every time they found one they liked, it failed to appraise and the sellers refused to negotiate. They paid for three appraisals, their cash reserves were dwindling fast, and they were no closer to owning a home.
Finally, they found another house they liked and it appraised for the selling price. The lender – who had been working with them through the entire ordeal – came to our office positively crowing because he was finally going to close a mortgage loan for this couple.
I remember his words distinctly: “The only thing that can go wrong now is if they go out and buy a car.”
Well … That shiny new red Jeep Cherokee was very pretty.
In spite of their lender’s instructions to do nothing with credit and nothing to reduce their bank balances until after their loan closed, they just had to celebrate. And to them, celebrating meant buying a new car.
So, have patience. Plan ahead when you’re going to want a loan, and don’t do anything with your credit for at least 30 days prior to making loan application. Once the loan is closed, you can do as you wish.
Bio: Mike Clover is the author of this article and is a 9 year Banker. He writes about the credit sector and has other projects such as CreditScoreQuick.com, CloverMortgageGroup.com, CreditQuick.com and FreeCreditScoreQuick.com