The last few years have been tough ones for the real estate market, and especially for the banks who have watched as thousands of their home loans have gone into default, and homes into foreclosure. Because the lending market has become so tough, lending guidelines have already started changing, making it tougher for some people to obtain home loans.
Today I thought I would take a look at some of the things that are changing, along with some things you should avoid doing when you’re trying to get a loan.
Credit Reports Are Being Pulled Before Closing
One thing that has changed in recent months is that Fannie Mae has put out a program called the Loan Quality Initiative. It was started to minimize the number of bad loans that come through their doors. Fannie Mae wants banks to take more ownership for the loans that they give, and is then giving them the responsibility if things go bad. From themortgagereports.com
The Loan Quality Initiative is Fannie Mae’s response to the foreclosure surge since 2007. The program shifts the onus of mortgage guideline compliance away from the the government-backed group and to the individual banks responsible for making loans…
For the most part, mortgage applicants won’t be bothered with the changes. It’s just extra work for the bank. Things like Social Security Number validation checks and borrower occupancy standards.
There is, however, one major consumer hurdle.
The hurdle that many borrowers will face is the last-minute credit check. In the past, when applying for the loan you would have your credit checked at the beginning of the process, and if you were approved – and the loan was underwritten, you could almost be sure that your loan would be funded. Now with the new initiative, after the loan has been underwritten and approved there will be a last-minute credit check before closing to make sure your credit situation hasn’t changed.
If your credit situation has changed especially if it has worsened, it could mean that your loan won’t be funded, or that you may have to go through the underwriting process again. When you go through underwriting again you may end up with a worse rate, or worse, you could lose your loan approval!
Things Not To Do Before Your Home Loan Is Funded
In order to ensure that you don’t lose your rate, or lose the funding on your home loan altogether, here are some things that you should avoid doing when you’re trying to buy a home – right up until the loan has been funded and you’ve closed on the home.
- Don’t open new credit cards or lines of credit: When the amount of debt you take on, or available credit goes up, that will be a negative to lenders. Stay away from these things until you’ve moved into your new house – after the loan has been funded.
- Don’t make any new charges on your existing credit: If you already have existing credit cards or lines of credit, don’t make any new charges, especially larger ones, on the card. Your debt-to-income ratio will be determined, and the more debt you have, the worse off you are.
- Don’t finance any large purchases: Put any plans to finance a new car, ATV or other large ticket item until after you buy the home. Even leasing a car should be put on hold. Again, your debt-to-income ratio will be looked at.
- Don’t try to hide things from your lender: If you try to hide things from your lender it can end up causing you to lose your loan. Don’t try to hide things like large deposits to your accounts (be ready to explain where the money came from), child support payments or alimony. They will end up finding these things out anyway, so no reason not to mention it and jeopardize your loan.
- Keep your credit score high: Do everything you can to make sure your credit score stays as high as possible. Pay your bills, and don’t let things go into collections!
The point I’m trying to get across here is that when you’re trying to get a home loan, you need to make sure that your credit situation stays strong, all the way through the process until the loan is funded.
In the past people may have been able to get away with financing a car after getting their loan approved (many people buy new cars when moving!), but nowadays things have changed. It’s better to hold off on any new purchases, new credit cards, or anything else that could affect your credit – until things are signed sealed, and delivered.
Do you have any other things that people should avoid doing when buying a home (that could cost them money)? Tell us your thoughts in the comments.
Before I bought my home, I started to reorganize my finances and my monthly bills. In doing so, I read a blog post on AOL’s walletpop the other day about a company called MoneyAisle. It does the online research for the consumer and has banks bid on us online, where we receive the top 3 rates to choose from for auto refinancing. I went through the process and ended up saving $75 a month on my payment, which basically pays off some of my new home expenses. Right now the search process for the best rates is such a pain and dealers try to get the highest dollar amount, so this is a super awesome tool. I def suggest taking a stab at going through the process, you will be shocked when you see what you get as a rate compared to what you are currently paying or what you are given by other banks/dealers. Hope this also helps!