Closing on a home can be a stressful but also exciting time for buyers. However, buyers need to be aware that changes in credit before closing on the house can be detrimental to their ability to buy the home they likely spent countless hours searching for and selecting.
As of June 1, 2010, Fannie Mae’s Loan Quality Initiative requires lenders to refresh a borrower’s credit report just prior to closing. This means that any new line of credit, any increases in credit, any increase in balances, any derogatory item, etc will appear on the report.
Here is a scenario for example:
A couple makes an offer on a home they love. Though they realize they’re stretching a bit, they get pre-qualified to get the loan. They receive formal approval and are elated. They decide to make some new furniture purchases for the new home—and they put it on a credit card. The lender runs an updated credit report just before closing, as per Fannie Mae’s new guidelines, and they no longer meet the DTI (debt to income) ratio to qualify for the loan because of their balance increase. The loan is pulled. Now there’s no new house, and lots of new furniture.
The idea behind the Loan Quality Initiative was to focus “on capturing critical loan data earlier in the process and validating it before, during, and immediately after loan delivery.”
Borrower qualifications were just one issue of concern. Others were:
- Determining owner occupancy
- Verifying social security numbers
- New exclusions from Fannie Mae loans
- Updated quality-control policies
Fannie Mae guidelines do not technically require updated credit checks for borrowers, but it does offer it as a suggestion to lenders to be in compliance with Fannie Mae’s new initiatives. The suggestions point out that not only might a refreshed credit report show newly-acquired debt, but also new credit inquiries.
New acquirements can be seriously detrimental to your ability to purchase your new home. Keep your credit report as constant from its initial pulling to the last update prior to closing. Once you get the keys to your new home, go ahead and buy the new furniture or the new car, but not until then.
