Credit Reports: One May Not Be Enough

Michael-Poland-Baird-And-WarnerThis summer, Fannie Mae instructed lenders that they should adopt a new policy that would include a second review of an applicant’s credit report just prior to closing. Why? The answer is simple: the credit profile of a borrower may have changed between the time of the initial review of the credit report and the time of closing. How will this impact the home loan?

The potential impact to a borrower who has utilized credit to make significant purchases after the initial credit report could include:
- A delay in closing
- Increase of closing costs and/or interest rate
- A decreased loan amount
- Denial of the loan

That’s right, in the worst-case scenario, a change in credit could even result in a loan being denied – even after an original approval had been granted.
What should homebuyers do (or not do)?

In order to eliminate any possibility of potential problems before closing, anyone in the application process should use credit sparingly and make sure they adhere to the tips provided below by credit expert Linda Ferrari of Credit Resource Corp:

- Don’t do anything that causes a red flag to be raised by the scoring system.
- Don’t apply for new credit of any kind.
- Don’t pay off collections or charge offs.
- Don’t max out or over charge on your credit accounts.
- Don’t consolidate debt onto one or two credit cards.

This list is not comprehensive, but it does give you a peek into situations that could create issues and could also be contrary to some ideas you have read previously.

Guest blogger, Michael Poland, is a senior mortgage banker with Baird & Warner Financial Services in Baird & Warner’s Lincoln Park Office. Michael can be reached at 773.770.7524 or by email at michael.poland@bairdwarner.com.

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