Ever since Fannie Mae’s “Loan Quality Initiative” went into effect, lenders have been required to track any changes in a borrower’s circumstance and re-verify credit profiles just before closing. Lenders are required to do this to ensure loans are priced properly according to the borrower’s risk at closing instead of upon application. This can be especially important with loan closings that are 60 days or more.
How does that affect the new mortgage applicant? If the borrower changes his or her circumstance from the time the mortgage application was initiated through to just before closing it could result in the loan being delayed, re-underwritten or even denied altogether.
There are three things a borrower can do to improve the likelihood of a loan being approved at closing. The first thing that lenders look for is if the borrower acquired an auto loan or new credit card since the loan application. Most lenders will do a credit check just before closing to ensure that the borrower hasn’t opened any new accounts. Even opening an account without charging anything on it can result in being denied a mortgage approval because open credit is the same as used credit.
Current Outstanding Credit
Second, the lender will do a credit check to see if the borrower made any big charges on his or her current credit cards or to see if balances increased significantly. Approval for a mortgage is partly based on the borrower’s debt-to-income ratio, which means the lender looks at the minimum monthly amount the borrower has to pay on current debts and compares that to his or her income.
Everyone wants to get ready for their new home with much needed items such as appliances, furniture or yard equipment. However, a shopping spree could result in a debt-to-income ratio that is too high. Therefore, it is better to try and pay cash for everything or wait to purchase big ticket items once the mortgage closes.
Change in Employment
Another good way to derail a mortgage is for a borrower to change jobs or switch the type of compensation he or she gets from employment. For example, if an employee was salaried when he or she first applied for the loan and then switched to a commission or bonus income source then he or she would no longer have the income history needed to qualify for the loan. This is because commission or bonus income requires a two-year history profile.
Even if a mortgage loan is not being underwritten by Fannie Mae, it is always better to be safe than sorry. Ensure that the final credit report matches the one taken at the original loan application. Otherwise the mortgage could be subject to a complete re-underwrite or worse a complete loan application denial.
Aurora, a leading financial services company, has funded billions of dollars in loans across the United States and serves clients nationwide in more than 18 states and jurisdictions. A Direct DE FHA Lender, Aurora provides a broad range of financial products and services, including consumer banking and credit, corporate and investment banking. For more information on Aurora Financial, visit www.auroraf.com or call 1-(877) 887-1117.