Thursday, May 20, 2010
For those of you who have recently applied for a home mortgage or hope to do so soon, be hesitant in applying for any other credit before closing. Beginning June 1st, as part of Fannie Mae’s “loan quality initiative”, lenders will be required to “order a second full credit screening immediately before closing”, a change to their current underwriting standards. This will be done to determine whether or not borrowers have applied for new debt anywhere else. If so, their mortgage applications could be affected in a negative way. This is in part to due to applicant’s debt-to-income rations (DTIs). Loans are more likely to fall through when your total DTI is adversely affected by newly acquired debt. If your ratio starts to increase, your chances for closing a loan will decrease. When this happens, most lenders view borrowers as “ineligible” because they might not be able to handle their monthly payments on the original loan. This may have an impact on borrowers more than before because it is hard to resist creating new debt after a home loan is approved. After mortgage approval, borrowers are likely to apply for new credit in purchasing furniture and/or goods for their homes. However, lenders will now contact merchants where you obtained the credit to determine how this will affect the applicant’s home-financing transaction. Lenders will be told to investigate to determine every debt incurred up until closing. This process could make or break your loan finalization. If you need that extra sofa or want that new credit card, wait those 40-60 days for the loan to close. If you are confident that application for a new loan will not affect your debt to income ratio, try calculating this ratio yourself. Finding this ratio can be quick, easy and free. Some sources such as ehow.com allow you to do so by entering your total monthly loan payments (including the newest loan you wish to acquire) and dividing that by your total monthly income (including bonuses, alimony, etc). This will provide you with the ratio and the ideal DTI is .36 (36%) or less. Keep this figure in mind when applying for any future loans to avoid potential problems. So be wise before you decide to potentially put your home loan at risk. After all, what would you do with your new leather couch with no home to put it in?