Do Not Seek New Credit Before Your Mortgage Closing

If you are applying for a mortgage as of June 1, 2010, your lender might be ordering a second full credit report before closing. This last minute credit report is intended to find out if you have obtained or even shopped for any new debt between the date of your loan application and your closing. If you have any new applications of credit of any type the closing can be put on hold until the lender can research these applications.

Loan Quality Initiative

This new "loan quality initiative" by Fannie Mae is an effort to cut down on careless underwriting by lenders and fraud by borrowers. Not only will lenders have pull two credit reports for each mortgage transaction but they will have to perform additional verifications of borrower occupancy plans for the property, Social Security numbers and Individual Taxpayer Identification among other changes.

In many instances mortgage borrowers start shopping for things for their new house as soon as they have been approved for the loan. So if a borrower puts in a credit application at a retailer and that application now shows up as a hard inquiry on their credit report, the lender is going to have to call the merchant and find out if credit was granted and then determine how this might affect the applicant's mortgage.

Debt-to-income Ratio

A mortgage could fall through if any new loan is large enough that it affects the debt-to-income ratio that was used in the original mortgage approval. Lenders will be looking for things like new credit accounts, increased credit lines, increased balances on existing accounts, undisclosed or newly recorded liens, second mortgages -- anything that may have changed since the initial application that might impact a borrower's debt-to-income ratio.

In the past it use to not matter much once you were approved for a loan but now the best thing to do is resist spending and not apply for new credit between your application for a mortgage and the date of closing, this could be anywhere from 45-60 days or more.

The three most important loan factors are your credit score, your debt-to-income ratio and your loan-to-value ratio. Getting your finances in order and increasing your credit score before you start to shop for a loan can help you save thousands on your mortgage. If you have an excellent credit rating and can put at least a 20% down payment you can expect to have low interest rates. Reducing your mortgage rate by just one percent can save you thousands of dollars.

Each time you submit a credit application of any kind, you are establishing an inquiry, which can negatively affect your score. Learn more with the Complete System to Repair Your Credit and Boost Your Credit Score. Download Now!