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Fannie Mae and Freddie Mac are the largest buyers of mortgages these days which means that most borrowers will have to conform to the guidelines set by these two entities when applying for a mortgage. In an effort to prevent “shotgunning” (a type of mortgage fraud in which borrowers take out multiple loans on one or more properties) and other undisclosed liabilities, Fannie and Freddie have instituted new quality control guidelines that require a second review of a borrower’s credit report just before settlement.
What does this mean for a borrower?
Don’t do anything that will affect your credit report–positively or negatively. At best, any discrepancies from the original credit report pulled at the time of the loan application will have to be documented and explained. At worst, a borrower’s loan could be denied just as they are getting ready to sit down at the settlement table.
I was recently talking to a loan officer who was trying to save a loan that was suppose to settle the next day. The borrower had bought a new car just after the loan had been approved. The loan officer, in compliance with Fannie Mae guidelines, ran the borrower’s credit report just before settlement, and the new car loan showed up on the report. The extra debt changed the borrower’s Debt To Income (DTI) ratio so much that the borrower no longer fell within the acceptable DTI guidelines for the loan. The borrower was not able to get the loan and was not able to settle on his new home.
Don’t even be tempted to open that department store credit card to take advantage of the 10% discount on your purchases until after you settle on your new home! While something that minor might not affect your ability to get the loan, it could delay the loan because of the documentation that will be required to prove that the new debt does not affect your ability to qualify for the loan.
As a borrower, it’s important to remember that “loan approval” is not guaranteed until after the settlement has taken place, and the funds have been dispersed. As much as you might want to order new furniture, or have that high efficiency washer and dryer ready to be delivered the minute you get the keys to your new home, hold off on taking on any new debt.
If you have any questions about the mortgage application and approval process, please do not hesitate to call or email!
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