Credit Tidbits: Below is an FYI – as many lenders may be following suit. Share the below “10 Do’s and Don’ts From Pre-Qual to Close” with your buyers to help reduce last minute credit issues!!! FANNIE MAE’S LOAN QUALITY INITIATIVE - PULLING A 2ND CREDIT REPORT AT CLOSING What underwriters will be looking for on a credit report: (not a requirement – but if the file is selected for a Pre-Fund review, the underwriter will be looking for the following: 1) New Debt. Underwriters will recalculate debt-to-income ratios using the “new” minimum payment due figures. If the DTI exceeds Fannie Mae’s maximum threshold, the loan could be denied. 2) Changes in credit scores. Underwriters will use the new credit score to assess loan-level pricing adjustments or possible denial in the case of a lower score. 3) Credit Inquiry Section. Underwriters will look at the Credit Inquiry Section of the new credit report to look for “non-disclosed liabilities”. If items are found, supporting documentation and a full explanation of each inquiry, including status of new credit, will be used to determine whether or not the borrower can pay back the loan. TOP 10 DO’S AND DON’TS FROM PRE-QUAL TO CLOSING 1) DO JOIN A CREDIT WATCH PROGRAM. For a fee of $9.95 per month (30 days free) – you can pull your credit reports and scores from all three bureaus every 30 days – AND IT WON’T CAUSE A HARD INQUIRY. Could save a delay in closing AND penalty fees per day. www.CreditKeeper.com 2) DON’T APPLY FOR NEW CREDIT OF ANY KIND. Including those “You have been pre-approved” credit card invitations that you receive in the mail or online. Every time that you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately. New Credit also brings a credit score down. Depending on the elements in your current credit report, you could lose anywhere from 1 to 15 points for one hard inquiry. 3) DO PAY BILLS ON TIME. Stay current on existing accounts. Under the new FICO scoring model, one 30-day late can cost you anywhere from 50-100 points, and points lost for late pays take several months if not years to recover. 4) DON’T PAY OFF COLLECTIONS OR CHARGE OFFS during the loan process. Unless you can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, do it through escrow – at closing. 5) DON’T MAX OUT OR OVER CHARGE ON YOUR CREDIT CARD ACCOUNTS. In the matter of fact, DON’T charge on credit cards at all if possible. This is the fastest way to bring your scores down 50-100 points immediately. Try to keep your credit card balances below 30% of their available limit at ALL times during the loan process. If you decide to pay down balances, do it across the board. Meaning, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all to 30% of the limit, or all to 40% etc.) 6) DON’T CONSOLIDATE YOUR DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would be the smart thing to do, however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above in 4. If you want to save money on credit card interest rates, wait until after closing. 7) DON’T CLOSE ACCOUNTS. If you close a credit card account, you will lose available credit, and it will appear to FICO that your debt ratio has gone up. Also, closing a card or installment account will affect other factors in the score such as length of credit history. If you HAVE to close an account for DTI – plan ahead of time DO NOT close credit cards until after closing. 8) DON’T ALLOW ANY ACCOUNTS TO RUN PAST DUE – EVEN 1 DAY! Most cards offer a grace period, however, what they don’t tell you is that once the due date passes, that account will show a past due amount on your credit report. Past due balances can also drop scores by 50+ points. 9) DON’T DISPUTE ANYTHING ON YOUR CREDIT REPORT once the loan process has started. When you send a letter of dispute to the credit reporting agencies, a note is put onto your credit report, and when the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removed and new credit scores are pulled. Why? Because in some instances, credit scoring software will not consider items in dispute in the credit score – giving false data to the lender. 10) DON’T DO ANYTHING THAT WILL CAUSE A REG FLAG TO BE RAISED BY THE SCORING SYSTEM. This includes the not-so-obvious things like – co-signing on a loan, changing a name or address with the bureaus. The less activity on a report during the loan process, the better. BONUS: DO MOVE IN WITH YOUR MORTGAGE OR REAL ESTATE PROFESSIONAL DURING THE LOAN TRANSACTION! STAY IN CONTACT WITH YOUR MORTAGE AND REAL ESTATE PROFESSIONALS. If you have a question about whether or not you should take a specific action that you believe may affect your credit reports or scores during the loan process, your mortgage or real estate professional may be able to supply you with the resources you need to avoid making mistakes that could drop your credit scores or possibly, cause you to lose the loan! Information provided by: www.LindaFerrari.com |