New Credit Screening Possible June 1st

If you're buying a home and applying for a home mortgage, here's some important news: Beginning June 1, your lender is likely to order a second full credit screening immediately before closing.

The last-minute credit report will be designed to find out whether you have obtained — or even shopped for — new debt between the date of your loan application and the closing. If you've made applications for credit of any type — for furnishings and appliances for the new house, a car, landscaping, a home equity line, a new credit card, you name it — the closing could be put on hold pending additional research by the lender.

If you've actually taken out new loans that are sizable enough to affect the debt-to-income ratio calculations used in your original mortgage approval, the whole deal could fall through. The added debt load could render you ineligible for the mortgage because you suddenly appear unable to handle the payments without a strain on your household budget.

The June 1st changes are part of a new effort by mortgage giant Fannie Mae to cut down on slipshod underwriting by lenders and fraud by borrowers. Fannie's "loan quality initiative" will require lenders not only to pull two credit reports for each mortgage transaction but to perform additional verifications of borrower occupancy plans for the property, Social Security numbers and Individual Taxpayer Identification Numbers.

How should home buyers and refinancers prepare for the new credit check procedures? Lenders and credit reporting company executives say everybody needs to follow just one basic rule: abstinence. Between your application for a mortgage and the date of closing — which might be a span of 45 to 60 days or more — resist the irresistible.

Don't apply for new credit unless you discuss it in advance with your lender and get a green light.

We also covered this in another article on "Home Buying Mistakes to Avoid." New credit can now kill your mortgage, even if you've been pre-approved, so just DON'T DO IT.