STOP! Don’t Mess Up Your Home Mortgage!

You’ve gone to your lender and been approved for a home mortgage.  You’ve found the home of your dreams.  But just when you are about to close, the lender says you are no longer approved.  What happened?

Since the infamous “mortgage meltdown” a few years back, lenders as well as industry regulations have gotten much stricter.  The latest tightening of the screws comes from Fannie Mae. The mortgage titan’s Loan Quality Initiative, which went into effect June 1, requires lenders to track “changes in borrower circumstances” between application and closing.  While these rules aren’t new, Fannie is enforcing them more vigorously.

The new rules simply want to ensure the new home loans are deemed “low risk” for default or buyback.  Basically, lenders want to be assured that this is the type of borrower that has the ability to repay this loan in full.  With the increase in regulation and scrutiny over any changes, even seemingly small changes can implode your pending mortgage.

Following are three things borrowers can do to mess up their next mortgage closing.

Get a new credit card or auto loan

Get a new credit card or auto loan, and you could find yourself no longer approved for that mortgage loan.

Lenders have long admonished mortgage applicants to avoid getting new credit cards and auto loans while home loans are in underwriting. Fannie’s Loan Quality Initiative adds urgency to this request.

For example, picture a borrower who gets a car loan a week before closing on the mortgage. The mortgage lender doesn’t know about it. Later, the borrower misses a couple of mortgage payments.

Fannie Mae can look back, discover the undisclosed auto loan and make the lender buy back the bad mortgage. That’s a money loser for the lender.

So at the eleventh hour, most lenders check credit for new accounts.

Even merely opening an account — without charging anything to it — can be a mistake.

Charge up credit cards

Charging up credit cards with thousands of dollars’ worth of appliances, tools and yard equipment is another surefire way to muck up a closing. It’s best to leave those cards alone.

Don’t increase your credit card balances at all. Mortgage approval is based partly on debt-to-income ratio.  The lender looks at the borrower’s minimum monthly  debt payments and compares them to income. If the ratio of debt payments to income is too high, the borrower could be turned down for a mortgage.

Fannie encourages mortgage lenders to recalculate debt-to-income ratios just before closing. If a spending spree sends the debt-to-income ratio too high, the mortgage could be doomed. For this reason, borrowers should wait until after closing the mortgage before buying furniture, a refrigerator or a lawn mower on credit.

Change jobs

Changing jobs is another good way to derail a mortgage before closing. Other potential deal-breakers include staying with a current employer, but switching from a salaried position to one where primary income comes from commissions or bonuses.

Any slight change in income could cause you to not qualify.

The main thing to remember is, keep everything exactly the same as the day you got approved.  No new car.  Don’t apply for a credit card so you can get brand new furniture.   And definitely don’t change your job.

Getting Married? How Marriage Affects Your Credit

 

Today, February 14^th is the most romantic day of the year.  In fact over 2.2 million people will get married today and millions more will become engaged.    Getting married is a wonderful moment in life, but it can affect many things, including your credit.  So in the spirit of the holiday that love built, we’ve decided to debunk some credit myths associated with marriage, and its effect on credit. 

 

Our Credit Reports MERGE TOGETHER When We Get Married

Many people mistakenly believe that getting married means that your credit also gets hitched. That’s not true because you never share, inherit, or merge credit histories. Marriage has no affect on your credit score even if you take your spouse’s last name or live in a community property state. Everyone has their own credit report and credit scores.

If you have joint account—such as a credit card, car loan, or mortgage—with a spouse (or anyone else) the account history appears on both of your credit reports. But if you have a credit account in your name only, it never appears on your spouse’s credit file.

 

If My Spouse Has BAD Credit So Do I

Marrying someone with bad credit doesn’t affect your credit (unless your name is added as a co-owner on a delinquent credit account), but it can hinder your ability to get credit as a couple.

For instance, if you apply for a mortgage or car loan that requires both of your incomes to qualify, the lender will review both of your credit histories. Having a spouse with poor credit could cause your joint application to be declined or require you to pay a relatively high interest rate on a loan.

 

My Credit History Is ERASED When I Change My Last Name

If you change your name after you are married and report this change to your creditors, you will see some updates to your existing credit reports. Along with your old name, your new name will be listed as an alias. You will not have to start from scratch with a new credit history. There may be a few inaccuracies on your report as this transition takes place, so it’s important to check your credit report frequently during this period.

 

I Will AUTOMATICALLY Become A Joint User On My Spouse’s Accounts

Marriage doesn’t automatically make you an authorized user or co-signer on your spouse’s accounts. If you wish to be added to your spouse’s credit cards, you will need to call the creditors with this request. Please note that being added as an authorized user will not result in the account being factored into your credit score. As for loan accounts, becoming a co-signer for a loan usually requires refinancing.

 

Before getting married, make sure there is complete financial transparency. Understand your partner’s debt situation and credit history so you address any negative issues and increase your chances of living happily ever after.