Understanding Lender’s New Initiative, by michele marano

Fannie Mae has a new “Loan Quality Initiative”, which has taken effect June 1, 2010.  Basically, the lender will now check your credit score, for a second time, prior to closing to verify that you have not incurred debt during the underwriting process.

For those of you who do not know how the credit scoring system works, let me explain.  First, whenever you have your credit report pulled for opening a new credit card or applying for a loan, it is considered a “hard inquiry”.  If you have several hard inquiries within a short period (usually a 30 day window) they will be grouped together and counted as 1 inquiry.  In this case, your score will be effected anywhere between 3-5 points.  If, however, your inquires are spread over a longer period, then this will affect your score by several points each time your credit is pulled.

In addition, if you are late on any payments, close credit cards, max out or over charge credit cards, dispute anything on your report or pay off collections or charge offs, your credit score will be effected negatively, resulting in a lower score.

So, if you are excited about closing on your new home and decide to run out and buy new furniture of charge window treatments on one of your cards, STOP!  If anything, pay cash so your credit is not affected.

Basically, you need to NOT DO ANYTHING that will affect your report during the loan underwriting process.  When your second report is pulled prior to closing, and it reveals negative changes, your mortgage is subject to re-underwriting and the possibility of being rejected and not closing at all.

Michele is a licensed Texas Realtor with Beth Wolff Realtors – 713-899-8420

michele@luxuryhighriseshouston.com OR michele@bethwolff.com

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