You have your dream home in escrow, the loan has been approved and you are just chomping at the bit to buy that new sofa you always wanted. How do you afford this purchase, put it on a credit card? By doing so you are putting yourself at risk of having your loan reviewed and in the worse case, canceled.
Almost every lender rechecks your credit just prior to giving you the money so beware. No new big ticket items should be bought on credit. This is especially true in todays rising interest rate environment. If your loan interest rate is locked, any delays could put you beyond the number of days the lock is good for. And NO, a lender will not extent this period if your interest rate is lower than what they are offering, at least not for anything less than a hefty price.
Thus the following article in the latest issue of Market Matters put out by the CALIFORNIA ASSOCIATION OF REALTORS® is timely and hopefully can remind and home buyer who is in escrow, PUT OFF THAT LARGE PURCHASE TILL AFTER CLOSE OF ESCROW.
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 borrower’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 lender’s view. For example, the sudden addition of a $3,000 balance to a new credit card account for an item you’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 spouse’s income instead of two, the lender will see a higher debt-to-income ratio.
- 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 borrower’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, bug those with tighter finances are advised to be more cautious.
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