Mortgage Borrowers Beware: Limit Your Credit After Application!by Tim Manni
Beginning this month, lenders of Fannie Mae-guaranteed loans will likely pull a second credit report near the time of your closing. What does this mean?
Once borrowers fill out a mortgage application, they’re going to be monitored by their lender to see if they apply for new credit or add to their current credit balance. If borrowers do, their mortgage could fall through.
What makes this change — which was created to deter mortgage fraud — especially difficult and inconvenient is that many homebuyers rely on their credit cards or their ability to open up new lines of credit to furnish and or spruce up their recent purchases:
“There’s an almost irresistible urge” for many mortgage borrowers, said Don Unger, chief executive of Advantage Credit of Evergreen, Colo. “The lender says, ‘Okay, you’re approved for the loan,’ and you immediately think about shopping for all the things you need for the house. You go to Home Depot” or other major retailers, “and you put in an application.”
In the past, that might not have raised an eyebrow — or even been detected. But under the new double-check policy, when the Home Depot application shows up as a “hard,” or borrower-initiated, inquiry on a credit report, Unger said, the lender “is going to have to contact” the merchant and determine whether credit was extended, in what amount, and how this might affect the applicant’s home financing transaction.
Furthermore, this new change doesn’t just put the buyer’s purchase on thin ice, it threatens to kill the transaction for the seller and the commission for the lender.
Lenders need to educate borrowers about the implications that the pulling of a second credit report can have. Borrowers need to be made aware that buying a car, charging large purchases to their plastic, opening up a line of credit at the Home Depot or their local furniture store between the time they submit their application and the time they close could potentially cost them their home.