If you’re not very careful, a new rule just enacted June 1st by Fannie Mae, could put an end to your dreams of owning a home.
Fannie Mae has implemented what’s called “The Loan Quality Initiative (LQI). (Don’t you just love the names they come up with?)
The LQI is designed to make sure that the mortgage loans bought by Fannie Mae comply with its underwriting requirements.
What’s important to you is that this will require mortgage companies to double-check your financial information right before your closing. What they are going to do is “refresh” your credit report to look for any new debt or a lower credit score.
Some banks are checking this out just 2 days before closing!
Translation? Even though you may have been approved for the loan a month or two earlier, changes in your finances could cause the mortgage company to delay or deny your loan just as you are about to close on the home.
Read On for 4 Things You Want to Avoid Before Closing:
1. Say No to New Credit: You do not want to get any new credit cards, loan for that car you’ve been thinking about, that special at Best Buy, etc. Zero, Zip, Nada!
2. Don’t Charge Up Existing Credit: Buying a home often leads to debt in other areas of your life. A common example people often purchase new furniture on credit anticipating their upcoming move. Others borrow money to help pay for repairs on either the home they are trying to sell or their new home.
However good the reason, this new debt results in higher debt, a higher debt-to-income ratio, and quite possibly a lower credit score. When the lender rechecks your financial info before your closing, these negative marks could result in a denied mortgage application.
3. Do Not Change Jobs: If at all possible, try to avoid any change in your job status or income until after your home purchase has been settled. The loss of income before closing will raise your debt-to-income ratio, which could result in a bad credit decision. At a minimum, a new job will likely require the mortgage company to re-verify job status and income, which could delay your closing.
4. Don’t Hurt Your Credit Score: Finally, if you want to be “King of the World” and secure your palace, don’t do any thing that could lower your credit score. You do not want to be like the couple in this picture whose moment was ruined.
Make sure you pay your credit cards, car loans, and other bills on time and keep your credit debt well below your credit limit.
It’s important to note that how new credit, a late payment, or other negative marks will affect your credit score depends in part on what your credit score is to start with. So if you have to do something that could lower your credit score, talk to your lender first to discuss alternative options and the affect your decision could have on your mortgage application.
We have more helpful tips and resources for you on our First Time Buyer page and Buyer Resources area. If you have not heard this news yet than you probably not heard of the Exclusive Buyer Agent strategy for buying a home. Find out what other educated and savvy home buyers are finding out and why they are switching to Exclusive Buyer Agents.
Below is some timely information that just came in to us courtesy of Eileen Dalhoff from First National Bank of St. Louis