This was a recent quote given to me from a homebuyer who was about to close his loan transaction with my bank. The problem is, this car purchase was being done just after we approved his home loan and in the stages of closing. This new debt was not disclosed nor part of the original loan approval that was issued to him. Does this sound like a problem?
The answer is “YES”
It is never good advice to take on new obligations or even activate new credit while in the process of closing a home loan. This credit activity raises several red flags to the lender and in this case, the lender has to exercise a “pre-funding audit” of the entire loan file.
<p”>Just Before You Close…
When a home loan is approved, there is a brief period of time where the lender arranges to have the final loan documents drawn up for the borrower to sign and close the transaction.Just before the docs are drawn, the lender will preform what is called a “pre-funding audit”.
This audit can involve a quick re-verification on the borrower’s employment and credit. In this case, the new credit created was a monthly obligation of a Car Payment. A new obligation of a car payment can hurt a borrower’s qualifications, ( just ask Suzie Orman, @SuzieOrman) or Facebook her page here
In this case, the bank asked the borrower to provide the new Car Loan payment terms and paperwork. The new loan payment was calculated and the borrower had to go through the process of getting re-approved.
Luckily, the borrower qualified for the new car payment and the new home loan was re-underwritten and approved. The only thing lost was a little time, however, it could have been a lot worse. The borrower could have lost his qualifications with too much debt and the loan could have been declined on the very last day of this transaction.
Home Buyer beware, the best advice any Loan Officer can give you when you begin the process of a home loan is the following:
1. Be as boring and predictable with your credit use as possible during the entire process. Don’t make any large purchases with your credit cards. Do not apply for new cards or seek to ‘consolidate’ cards while your loan is in process.
2.If you have any unusual activity, be prepared to document the use of your credit and be ready to provide an explanation to your Loan Officer.
3.If you are unsure and have a question, stop and pick up the phone and call your Loan Officer just to make sure. The last thing you want to do is make the call after the fact…
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