Fannie Mae has some new guidelines going into effect as of June 1st 2010 in regards to credit reports. Fannie Mae wants to make sure that borrowers’ overall credit situations have not changed between the time of application and settlement, and to make sure that there are no new undisclosed debts.
So, be aware that lenders are going to start pulling new credit reports immediately prior to settlement to double check for this. If ANYTHING has changed on the new credit report, these changes will have to be addressed prior to the loan going to closing and could delay closing or cause even larger problems, depending on what the change is.
Changes they’ll be looking for
– If any balances increase on the new report, the higher payment associated with these new balances will have to be factored in to the debt ratios.
– If there are any new inquiries on the credit report that weren’t on there initially, these will have to be addressed so that the lender can be assured that there are no new credit accounts opened. I’m not yet sure how this will be dealt with, but lenders could go as far as making the borrower provide a letter from the entity that pulled their credit stating no new debt was opened. At the very least, an explanation letter will be required from the borrower.
So mortgage borrowers will now have their credit reports pulled at loan application, as well as right before settlement. Two credit reports are now needed for one loan!
Also, keep in mind that any of these things (new credit inquiries, new debts, higher balances, etc.) can change a credit score and if the score goes down, you may be subject to higher interest rates, more restrictive Loan-To-Value’s, and loan denial if the borrower no longer meets minimum score requirements.
What not to do
It is now imperative that all mortgage borrowers know that these new requirements exist and that it is vital that they not do anything between loan application and settlement that could change their credit score.
Some home buyers think they can go shop for furniture on their credit card or open new accounts at the furniture store or Home Depot. Mortgage borrowers need to know that NO ONE should be pulling their credit report after the loan process starts and they should not be applying for any new credit until AFTER settlement.