A long, long time ago in a place far, far away….2005; the time of easy loans. You spoke to a lender and they pulled your scores, asked you some questions and said “you can afford a mortgage up to $$$”. More importantly, you were 100% sure that there were not going to be any problems moving forward with that loan. Pre-qualified was synonymous with cash-in-hand.

Lending requirements have tightened a bit and now you have to actually put money down on the home you’re buying. You have to have a decent credit score and income as well. But hearing your lender say “clear to close” a week before the closing doesn’t really mean anything anymore. That’s because last month Fannie Mae implemented the “Loan Quality Initiative”. This is to reduce bad loans and by verifying more information in a more thorough way. It places the responsibility on the bank doing the lending to verify the reliability of the borrower. But there is on particular change that can come back to bite even the most qualified of buyers.

The Last Minuet Credit Re-Check

Basically Fannie Mae requires that lenders check to see if an applicant’s credit profile changed while the loan was in underwriting.  If it did change then Fannie Mae can refuse to purchase the loan which will require the bank to bear the burden with the loan on its books.

So, the bank will take your credit report and do a complete re-pull just prior to closing to make sure nothing changed, sometimes a day or two prior to closing. They are looking for new credit cards, a run-up of current credit card debt, updated or previously un-reported credit info or any major new purchases like cars, boats, etc.

Where It Gets Interesting

Regardless of the information that comes up, if underwriting sees anything they don’t like they can ask for more paperwork, deny the loan or require the process to start over from scratch. At this point, it’s usually past the due diligence period so the buyers earnest money is at stake.

So, when you’re applying for a loan to purchase a home – be smart and be prepared. Don’t do anything that will change your debt-to-income ratio, don’t apply for more credit, and don’t close any accounts. Do have access to all of your financial, work and tax information at all times (don’t pack up the house and put your files on the truck).