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Avoid Disrupting Your Closing

On Tuesday June 1st, Fannie Mae (FNMA) instituted their “Loan Quality Initiative”. This initiative is full of new guidelines that all lenders must meet on FNMA loans; they will undoubtedly affect the timely closings of many mortgage transactions. It’s only a matter of time until they get to Freddie Mac and FHA loans too.

This initiative requires lenders to perform additional QC measures to verify the borrower’s intent to occupy, their social security number and to pull a second credit report just prior to closing to look for new debts.

The last item is going to be the one that will often delay closings and, in some cases, result in loan denial even after your mortgage was originally approved by the underwriter! The new pre-closing credit pull will be to check for new credit activity (new debts); this report will not have credit score. If new activity has been spotted, the lender will then have to pull a full credit report with credit scores. At that time, the new debts and new score will have to be taken into consideration. This can change your approval and your interest rate!

Example: You apply for a mortgage to purchase a home and, between the time of application and closing, you went out and bought $4,000 of furniture for your new home. When we pull the second credit report just before closing, the new debt will show and, in turn, will have to be taken into account. This will affect your debt to income ratio; sometimes bringing a person’s debt-ratio over the limit.  Further, because most of these new debts (such as furniture) are revolving debts – the worst kind of “hits” to show on your credit report – it will probably also push the credit score down significantly thereby affecting your loan’s rate and overall approval.

This could easily result in your loan being denied. In the past, this would have never even been detected.

Tips to ensure your mortgage closes smoothly:

Credit Cards / New debt: Once you have applied for a mortgage, do not apply for new debt or credit cards, even if you do not plan to use them until after settlement. When you buy a home, you will undoubtedly buy items for that home; please wait until after you own the home!

Review your credit report: Be proactive in the process by thoroughly reviewing your credit report with me at the beginning of the process and report any inaccurate or missing information so that we can address it accordingly. What is missing on your report today could show up later and derail your closing.

Save everything: Save all of your bank statements, paystubs and credit card statements from time of application until closing. We may need them.

Do not pack your financial papers: Keep all tax returns, W-2’s, paystubs, 1099’s, K-1’s, bank statements etc… in an accessible place – not in POD somewhere in Timbuktu. You never know what you may have to provide at the last minute with the new guidelines. Be prepared!

Gift Funds and Large deposits: Based on the new rules, we will need a more detailed paper trail on gift funds and large deposits that are not consistent with your normal deposit pattern. If you are receiving a gift, we will need to verify that you have received it and that the donor has the ability to give those funds. Large deposits will have to be sourced; be prepared to show and explain where that money came from. If it was from a bonus, have the check ready. If you sold a car, have the bill of sale and a copy of the title transfer.

Changing Jobs: This one may seem obvious, but if you are planning to change jobs during the loan process, please inform me ASAP. If you are forced to change jobs, inform me immediately. You will sign a final application at settlement. When you sign it, you will be verifying the information that it contains. Do not commit mortgage fraud.

Do not move cash around: Lenders must verify all funds for closing and the source of those funds. When you move those assets around, it creates a paper trail nightmare. The best practice is to leave everything where it is. Once we have verified all accounts and given you the ”ok” , then you can commence shuffling funds.

Finally, when in doubt, contact me to ask. Do not take any chances with the approval of your loan. If additional verification is required, it will in most cases, delay your closing.

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