Don’t Let Credit Checks Derail Buying a Home

Since 2010, mortgage giant Fannie Mae has mandated that lenders recheck a borrower’s credit prior to closing on a mortgage. If anything new arises in the credit re-check, lenders may want to delay the closing to verify the borrower can still afford the mortgage. In some cases, the lenders may even cancel the mortgage prior to closing, which could mean a higher interest rate on a new loan.

During the credit re-check prior to closing, lenders will scan for any new credit card accounts that have been opened as well as any new credit inquiries. For example, a credit inquiry from a car company may indicate to a lender that the buyer is in the market for a new car, which could send up a red flag if the buyer is going to take on more debt.

Fannie Mae’s maximum debt-to-income ratio is 45% — a maximum of 45% of a gross monthly income can be allocated for mortgage and housing expenses and other debt.

To avoid delays, lenders recommend that borrowers check with their lender before taking on any new debt. Borrowers should also notify any lenders about any changes in employment or job loss. Lenders will reverify borrowers’ employment status prior to closing, and even a change in the company’s name by the borrower’s employer has the potential to delay closing.

Source: “Pre-Closing Credit Checks,” The New York Times (July 5, 2013)

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