A real estate agent's work isn't done when buyers ink their signatures on a real estate contract. The agent still has to help the buyer negotiate the financing maze. Partnering with a knowledgeable loan officer who can provide the buyer with astute financial advice can make the difference between a nice commission and a lost sale. Changes in mortgage practices that went into effect June 1 could impact a home buyer's ability to consummate a mortgage loan despite pre-approval. Savvy realtors and loan officers will make certain their clients are advised of new mortgage practices and how to protect themselves.
Beginning June 1, 2010, mortgage lenders started ordering a second credit check on home buyers immediately before scheduled closing dates. To protect their credit rating, home buyers have routinely been advised not to apply for new credit prior to purchasing a home. However, the moratorium on new credit was presumed to end once the buyer's mortgage loan was approved. Many buyers felt free to open new credit accounts and increase credit card purchases at home furnishing stores, appliance stores, flooring outlets and other retailers in anticipation of moving into their new home. Since June 1, however, new credit applications of any type, including new credit cards, expanded credit balances and home-equity credit lines, could potentially endanger a buyer's mortgage loan.
Mortgage approvals are based on viable debt-to-income ratios determined by lenders. To ensure that home buyers do not increase their debt-to-income ratio after mortgage approval, borrowers are now subject to a second full examination of their finances and recalculation of their loan risk. A substantial change in a buyer's debt-to-income ratio can raise warning flags and cause a lender to withdraw a loan offer.
Implemented by mortgage giant Fannie Mae, the new double credit check policy is an attempt to rectify the slipshod underwriting practices and borrower fraud that led to the mortgage meltdown. Fannie Mae's "loan quality initiative" requires mortgage lenders to obtain two credit reports on mortgage borrowers and verify numerous aspects of the home purchase, including borrower identification and occupancy plans. A second report pulled close to the closing date may not leave enough time to verify and rectify any new issues, halting the sale. Real estate agents and loan officers should advise home buyers to wait until after the sale is finalized before making credit changes.
