New Mortgage Rules Much Tougher on Home Buyers
Today’s credit crunch really has anyone looking for a new home loan in a pinch. With banks nervous to lend money to individuals, both first time and experienced home buyers are faced with great scrutiny when trying to obtain a mortgage today. Government sponsored Fannie Mae and Freddie Mac, responsible for establishing underwriting standards for the majority of the nation’s mortgages, have made important policy changes that went into effect on June 1, 2010 and have been affecting borrowers ever since. These new laws have been instated to help avoid worsening the foreclosure crisis.
Known as the “Double Check Policy,” The June 1st adjustments state that lenders must do a second credit check immediately before the closing on a home. Taking on an even medium sized debt prior to the the closing will raise red flags and delay a closing possibly even causing potential buyers to be denied. If a borrower’s credit score drops by even a point, the new law states that loan terms must be reassessed, possibly causing the borrower to take on a higher interest rate. In other words, If the income to debt ratio is too heavily modified, FICO score may be changed and different loan thresholds will be instated.
The new law requires lenders to pull no less than two credit reports for each mortgage transaction and to perform additional verifications of borrowers’ occupancy plans for the property, social security numbers, and tax payer identification numbers. Lenders will also check to see if any jobs have been lost or changed. Any new credit accounts opened will be scrutinized. Everything will be looked up right up to the day of the closing and considered in the final loan analysis. Regulations also mandate a three-day waiting period for borrowers whose interest rates have changed by more than an eighth of a percentage point.
Not just good, but excellent credit is essential for getting a mortgage loan in today’s economy. Before facing costly and inconvenient delays and even denials, seeing a financial counselor is a good precaution to take. Resist the temptation to shop for large purchases before your closing and remember to communicate with your lender. Pre-approval does not mean a borrower will be approved at closing. With the “double check” policy, failing to disclose will no longer aid an unqualified buyer in obtaining a mortgage today.
