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Sarah Leonard

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Can my credit be affected while waiting to close?



Real Estate Corner
Q. Can my credit be affected while waiting to close?

A. Yes it can. Lenders have gotten stricter because Fannie Mae now requires lenders to track "changes in borrower circumstances" between application and closing. Certain actions could adversely affect a mortgage closing.

Here are three things that could hurt you.

Get an auto loan or new credit card. For example, a borrower gets a car loan a week before closing. 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. So now, just before closing, most lenders check credit for new accounts. Even something as benign as opening a new credit card account - without charging anything to it - can be a mistake.

Charging up credit cards. Mortgage approval is based partly on debt-to-income ratio. The lender looks at the borrower's minimum monthly debt payments and compares them with income. If the ratio of 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 to buy furniture or appliances on credit.

Changing jobs. Any change in your income potential, such as changing jobs or changing your income status in the job you now have, could derail a mortgage before closing.

I'd be more than happy to discuss this further with you and answer any questions you may have. Just give me a call.

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