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Pre Closing Credit RE-Check

Homebuyers all know that their bank or mortgage company have guidelines for their maximum debt-t0-income ratio. Often, however, some forget that making large purchases prior to their home loan closing may disqualify them from the mortgage loan they have applied for. Fannie Mae’s maximum debt-to-income ratio is 45 percent—a maximum of 45 percent of a gross monthly income can be allocated for mortgage and housing expenses and other debt.

Lenders remind their clients at the outset of the loan process not to apply for a new credit card, or take any action which could send up a red flag that the borrower has or is about to take on new debt.

Regulations now mandate that lenders recheck a borrower’s credit prior to closing on a mortgage.  Lenders finding new debt may delay the closing to verify that the borrower can still afford the mortgage.  Some lenders may even cancel the mortgage prior to closing.

“It’s more of an issue for people on the cusp of approval where they just get in under the wire,” David Stein, the chief operating officer and a partner of Residential Home Funding, told The New York Times. “If someone was a 44 percent at the approval, if they incurred more debt at the credit refresh, and the debt goes over 45, we can’t close that loan.”

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