Home Buyers May Face Delayed or Canceled
Loans from Pre-Closing Credit Checks Source: The
New York Times
Home buyers may face an unexpected delay or
cancellation of their loan if subsequent financial activity raises any red flags
for lenders, especially since Fannie Mae now requires a borrowerâ€™s credit to be
rechecked right before closing a mortgage.
Making sense of the story
- Borrowers are advised to keep their credit picture in the clear by
refraining from any purchases that may be seen as a liability from the lenderâ€™s
view. For example, the sudden addition of a $3,000 balance to a new credit card
account for an item youâ€™re planning to enjoy in your new home may cause the
lender to send back the loan to underwriting in order for the calculations to be
redone, which could result in a higher interest rate.
- If in doubt, borrowers are advised to check with their loan officer before
accruing any new debt so that the purchase of a new home is not jeopardized.
- Fannie Mae allows the maximum debt-to-income ratio to be 45 percent (meaning
that a maximum 45 percent of your gross monthly income can go to cover debt,
mortgage and housing expenses).
- When only one spouse of a couple is named on a loan, a credit recheck can
cause problems if the other spouse has a low credit score. When the loan is
based on one spouseâ€™s income instead of two, the lender will see a higher
- In addition, lenders now routinely re-verify the employment status of
borrowers just before closing, which represents a standard practice being
reignited after the financial crisis. If a borrowerâ€™s employer is undergoing a
name change, then the lender also should be notified to avoid delays.
- The most creditworthy borrowers may not have their loan status affected by
large purchases before a mortgage is closed, but those with tighter finances are
advised to be more cautious.
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