Do Not Sabotage Your Mortgage

On Tuesday 6/1/2010 Fannie Mae put into affect “Fannie Mae’s Loan Quality Initiative”. These new guidelines that all lenders must meet on Fannie Mae loans will affect the timely closings of many mortgage transactions.The new initiative requires lenders to perform additional verifications of the borrower’s intent to occupy, social security numbers and requires lenders to pull a 2nd credit report just prior to closing. That last item is the trip wire that will delay closings or even result in loan denial after your mortgage was cleared for closing! The initial pre-closing credit pull will be to check for new activity, this report will not have credit score. If new activity has occured, the lender will pull a full credit report with credit scores. At that time, the new debts and new score will have to be taken into consideration. This can change your approval and your interest rate!

Let’s say thatyou apply for a mortgage to purchase a home, and between the time of application and closing that you went out and bought $5,000 in furniture for your new home, when the lender pulls the 2nd credit report just prior to closing, the new debt will show and has to be taken into account. This will affect your debt to income ratios and could push them beyond the limits, or your credit score could drop significantly. This could result in your loan being denied.In the past, this would have never even been detected.Here is what you need to do to avoid sabotaging your mortgage:

Credit Cards / New debt:

Once you have applied for a mortgage, do not apply for new debt or credit cards, even if you do not plan to use them until after settlement. This will show up on your credit report and the lender will have  to prove that you have not incurred new debt or they will have to factor the new debt into your qualifying ratios. When you buya home, you will buy items for that home. Wait until AFTER settlement!

Review your credit report:

Be proactive in the process, thoroughly review your credit report with your loan officer and report any inaccurate or MISSING information.What is missing on your report today, could show up later and derail your closing.

Save everything:

Save all of your bank statements, paystubs and credit card statements from time of application until closing.Your lender may need them.

Do not pack your financial papers!:

Keep all tax returns, W-2’s, paystubs, 1099’s, K-1’s , bank statements etc… in an accessible place. You never know what you may have to provide at the last minute with the new guidelines.Be prepared!

Gift Funds and Large deposits:

Your lender will need a paper trail on gift funds and large deposits that are not consistent with your normal deposit pattern. If you are receiving a gift, your lender will need to verify that you have received it and that the donor has the ability to give those funds.Large deposits will have to be sourced, be prepared to show and explain where that money came from.If itwas from a bonus, have the check ready. If you sold an organ, have the paperwork and a photo of the scar. You get the point.

Changing Jobs:

This one seems obvious, but if you are planning to change jobs during the loan process, please inform your loan officer. If you are forced to change jobs, inform your loan officer immediately. You will sign a final application at settlement. When you sign it, you will be verifying the information that it contains.Do not commit mortgage fraud.

Do not move cash around:

Lenders must verify all funds for closing and the source of those funds. When you move those assets around, it creates a paper trail nightmare. The best practice is to leave everything where it is. Once you your lender has verified all accounts and gives you the ”ok” , then you can play musical chairs with your money.

Finally,

When in doubt, ask your loan officer.Do not take any chances with the approval of your loan. If additional verification is required, it will at the very least, delay your settlement.