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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.



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