Cautious mortgage lenders review credit reports at closing

Posted by  on Jun 21, 2012

The recession has caused many mortgage lenders to grow more cautious, especially when running background and credit checks for prospective borrowers. According to a report late last year in The New York Times, new policies may make it harder for consumers to achieve the low mortgage rates they locked in at the start of the refinance or home-buying process.

For years, mortgage lenders have informally reviewed applicants' credit throughout the underwriting process. Drastic changes in consumer credit scores, often caused by a flurry of new credit lines in advance of a planned move-in, sometimes lead to surprises at the closing table. A falling credit score can mean higher mortgage rates, additional closing costs or even a total collapse of the home loan underwriting process.

Government-backed underwriters Fannie Mae and Freddie Mac have formalized guidelines that require mortgage lenders to change or cancel home loan deals when borrowers' credit histories change between lock-in and closing. Though designed to minimize risk and reduce fraud, the new rules can cause you trouble if you don't follow a few simple steps:

1. Check your credit reports
Many mortgage lenders review reports from two or more credit reporting agencies. Use AnnualCreditReport.com to get your federally mandated free credit reports.

2. Avoid splurge spending
Opening a retail store credit card or buying a new vehicle can raise a red flag for mortgage lenders.

3. Time any job changes
If you're buying or refinancing due to a job change, ensure your new employment status can be confirmed before starting the underwriting process.

4. Maintain your current credit card habits
Mortgage lenders will reward you if you're using about half of the available limits on each of your open credit cards. Max any of them out or pay any of them off, and your lender may call off your deal.

5. Shop for home furnishings after closing
Not only will you keep your accounts in balance, you won't risk buying goods for a home a lender won't let you purchase.

Shopping for a new home or refinancing your existing property can be an exhilarating process, and it can be tempting to make some major lifestyle changes while you're waiting for your mortgage deal to close. Today's lending environment requires you to take a more conservative approach to saving and spending money. Meanwhile, credit monitoring agencies have access to more information about your financial life than ever before. Build your financial plan before you shop for rates, unless you're willing to risk a surprise mortgage rate hike at the last possible moment.


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