An old wives’ tale comes true

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I’m sure you’ve read or heard about things not to do when trying to get a mortgage that could disqualify you from buying or refinancing a home. You know what I’m talking about – a story that happened to someone somewhere, but could never happen to me…

I remember hearing a story of a couple that bought two luxury cars days before closing on their new home. Long story short – they no longer could buy the home!

Now it is doubtful that many of us would go out and buy one (let alone two) luxury cars right before closing. But that old wives’ tale may be coming true more often now than it ever has before.

I always warn my customers not to do anything in regards to credit once I’ve obtained a copy of their credit report. Don’t buy a car, don’t open a new credit card, don’t run up a higher balance on an existing credit card, don’t pay anything off or down if it isn’t needed to qualify. That advice is needed now more than ever thanks to Fannie Mae’s Loan Quality Initiative.

The purpose of the Loan Quality Initiative is to keep a close eye on any potential changes to a borrower’s circumstances from the application date to the closing date. Lenders will do this by pulling a copy of a loan applicant’s credit report up to the day of closing. This has always been a possibility – a random credit pull for quality control purposes – but now it is becoming standard practice.

If your credit report is pulled on the day of closing, and there is a credit account opened after your initial credit pull, your loan could be pulled back into underwriting to be reviewed before being allowed to close. If that happens, there will definitely be a delay in closing.

How can you prevent this from happening? Don’t do anything to your credit once you’ve been qualified for a new loan. Don’t apply for any credit, don’t let anyone make an inquiry on your credit report, don’t go out and purchase furniture or appliances on existing credit cards.

In short, don’t do anything until after you close on your loan. You’ve heard about the credit crunch, and this is simply another aspect of it. Remember this isn’t a single lender or bank’s guideline, but one from Fannie Mae. That means everyone will be subject to these new standards.

Have questions or comments? You know how to find me!

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