Applying For A Mortgage? You May Need To Freeze Your Credit Activity Until Your Loan Closes To Avoid Disqualification

May 19th, 2010

Under new guidelines set to take effect June 1, 2010, buying new appliances to be delivered to your new home the day after closing or going car shopping before your refinance closes could sink your mortgage application. Fannie Mae is altering its pre-closing quality control review process, and it may impact mortgage applications for those who are not aware of the changes. Under the new policy, Fannie Mae is requiring lenders to add one more critical step to reviewing every refinance or purchase mortgage package before funding: an updated credit report.

Your Credit Report

As you can see using free mortgage calculators, your debt payments, payments for credit cards, student loans, and car loans are key components of your ability to qualify for a mortgage. Part of any pre-qualification and pre-approval process is obtaining a credit report. Now, to ensure that the mortgage application you have submitted is as accurate as possible on the day your mortgage funds, Fannie Mae loans will require one more updated credit report just before funding.

Why Re-Check My Credit Just Before Closing?

The purpose of the pre-funding quality control guidelines from Fannie Mae is to “provide information that should prevent closing mortgage loans with significant defects such as misrepresentation, inaccurate data, or inadequate documentation.” Prior guidelines, which are still in place, require lenders to verify:

Now, in addition to verifying this information, a credit report will be pulled and the debts matched with the credit report in the file to ensure that the borrower has not obtained any new credit obligations nor had any inquiries showing the borrower is concurrently seeking additional credit.

How To Protect Your Mortgage Application

It is not unusual for ninety days to pass between the initial credit report pulled by your lender and the funding of your mortgage. After using a free mortgage prequalification calculator and contacting a lender, chances are that a credit report will be obtained at that time to accurately assess your credit obligations and score. From that time on, any changes to your credit report will not show to the lender until and unless another report is ordered.

To protect yourself and ensure that your mortgage application is funded:

What To Do If You Seek Additional Credit Before Closing

It is understandable that you will likely want to purchase housewares for your new home before closing your mortgage; however, if you do, make sure you provide all the credit information to your mortgage originator. Before you formally apply for the additional credit, make sure to inform your loan officer of the additional anticipated monthly payment obligations, so he or she can calculate your new income-to-debt ratios and ensure that you still qualify for the mortgage.

Last minute credit reports that show new accounts or multiple inquiries may have a negative impact on many borrowers. Those mortgages will likely need to be re-underwritten for qualification, and the delay could potentially lead to a higher interest rate–or the new information may even make you ineligible for your prospective mortgage entirely. Knowing your credit record and taking care to protect it will help ensure that your mortgage application process goes smoothly.

Remember, mortgage rate quotes are only as good as the credit assumptions you input. To ensure that your mortgage calculator gives you a realistic estimate of what to expect from your prospective mortgage loan, plan to keep your credit reporting data as unchanging as possible from your initial inquiry until your loan closes.

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