One of the old home-buying bugaboos from years gone by has reasserted itself. In the normal course of events, people buy a home and 30 or 45 days later their loan funds and they move in. What happens occasionally is that people will incur additional debts, and the additional payment on those new debts affects their qualifying.
I can remember one instance where a guy who was marginally qualified went out and leased a new Mercedes Benz with an $800 per month payment. That additional payment almost sank him until we got a letter from his employer stating that it was their intention to reimburse him 100 percent for this expense. One other time, an about-to-be housewife thought of all the furniture she wanted and instead of waiting until escrow closed, went and bought it all.
Most of the time, even if people did this, it wouldn't matter because we had the credit report from before and, frankly, no one knew about it. But cases in which there was a long period between pre-approval and when escrow was ready to close, the credit report would "expire" after 90 days and we'd have to get a new one. The new debts would show up on the new report and we'd have to re-underwrite the file. Most of the time it didn't matter, but it could.
Fannie Mae has indicated that they will begin requiring lenders to update the credit information right before loan funding. It applies to all laons and I simply cannot imagine that this is a BIG problem. But some bean counter back at Fannie Mae sees that it happens once in a while and all of a sudden they have an opportunity do make a new rule.
It's also not clear who will pay for it because by this time, all the documents have been drawn and the numbers can't change. But the cost is likely to be huge. Even if it's a cheap $10 report, were talking 10 times 10,000,000 loans every year. That's one hundred million dollars and you can bet neither Fannie Mae nor lenders will be eager to eat that! They will pass it on to you.
This also means that some people are going to get caught in a situation where their new debt means they no longer qualify for their mortgage and the deal will blow up. That's a whammy! In all likelihood, they will also forfeit their earnest money, which will be retained by the seller. That's a double-whammy.
Most people aren't on the edge, but even well-qualified borrowers who incur new debt might find their loan closing delayed as their lender re-underwrites the file. Even this is hard to explain to an anxious seller.
So if you are buying a home, resist all temptations to go open a new account or buy something. No new cards, no new things, no new debts, no new credit inquiries. Nothing! Zip! Nada! Zilch!
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.