How to Avoid your Home Mortgage Being Denied Prior to Closing
Many home buyers make the critical mistake of thinking that once they
have received approval for their mortgage application, everything will
be smooth sailing until the day of closing. As some buyers have
discovered, that is not always the case, especially in light of the
current housing crisis as more lenders are becoming increasingly
cautious. The real problem is that if your borrower circumstances should
happen to change between the day you actually apply for your home
mortgage loan and the day you close on the loan, there could be
serious problems that might even result in having your loan denied.
Lenders have become much stricter following the meltdown of the housing
market. Even Fannie Mae has tightened restrictions and have now
implemented changes that require lenders to track any changes as they
occur in a borrower's circumstances between the time of application and
the time of closing. These rules are not necessarily new, but Fannie Mae
is enforcing them far more vigorously now than in the past. If you are a
borrower, what this means for you is that certain actions can cause a
delay and possibly even a denial in your mortgage closing. There are
three things in particular that you can do which could throw a wrench in
the works for your mortgage closing.
Getting a new credit card or an auto loan ranks at the top of the list
of actions you should avoid before closing on your mortgage. When a loan
is still in the underwriting process, this is one of the last things you
need to do. For example, you shouldn't get a new car loan the week
before you close on your mortgage or get a new credit card in order to
buy new furniture or appliances for your new home. While many buyers are
not aware of it, most lenders do run a credit check for new accounts
just prior to closing. Even opening a new account, without charging
anything to it could be a crucial mistake. Retailers commonly offer
discounts to consumers who apply for credit and that can be appealing to
the customer; however, it can affect your ability to obtain that final
approval for your mortgage loan.
It is also a mistake to charge up your credit cards. It can be tempting
to charge up those cards for yard equipment, appliances and furniture
that you think you need for your new home but it is also an almost
certain way to mess up your closing. It is far better to simply leave
your credit cards alone and pay cash for everything prior to closing.
This is because mortgage approval is partially based on your debt to
income ratio. The lender will look at your minimum monthly debt payments
and then compare them to your income. If the ratio of your debt payments
to income becomes too high, you could be turned down for your mortgage;
even if you have been previously approved. Fannie Mae encourages lenders
to re-calculate the debt-to-income ratio prior to closing. If you have
recently gone on a spending spree and your debt-to-income ratio is too
high, you may have problems with your mortgage. Therefore, it's better
to wait until after the closing to buy anything you might need for your
new home.
Finally, keep in mind that changing jobs can also impact your mortgage
before closing. Remember as well that even staying with the same
employer but changing from a salaried position to one where your primary
income is based on bonuses or commissions could impact your mortgage
approval. You will typically need a two-year history for your
employment, especially if you go to bonus or commission based
employment. If you do not have a history for the new income it may mean
that income cannot be included at all and suddenly you may find that you
do not qualify for the mortgage after all.
The best course of action is to make sure that you do not make any
changes to your current status between the time you apply for your
mortgage loan and the day it actually closes. Simply because the lender
has indicated you are approved for the mortgage does not mean that
approval will still be extended if your circumstances should change as
it is conditional upon your circumstances remaining the same. Once your
mortgage has actually closed, you can then begin to look at making new
purchases or making changes in your overall situation.
| 
