New debt could pose threat to closings
Some homebuyers may be shocked to discover they’ve lost their mortgage commitment after making a major purchase prior to closing – or at least that’s the story that’s appearing on a number of real estate blogs.
Fannie Mae announced changes to its Selling Guide as part of its Loan Quality Initiative earlier this year. This update requires lenders to determine that all the homebuyer’s debts are disclosed on the final loan application. If the borrower takes on more debt before the closing, the lender should update its underwriting. If it fails to do so, it may be required to buy back the mortgage. In response, many lenders are expected to run a second credit check prior to closing.
“It seems clear that the purpose of the policy is to make sure that homebuyers don’t take on more debt than they can afford which, of course, would increase the likelihood that they may default,” said Jeff Lischer, National Association of REALTORS® (NAR) managing director for regulatory policy.
“REALTORS® may wish to counsel their clients about the risk of taking on additional risk, especially before they close on their home and get a good understanding of the costs involved in owning a home,” he added. “Any debt taken after the loan approval but before closing could put the closing at risk.”
“This isn’t anything new,” said former banker and PAR President Don Roth. “Lenders can always call the credit bureau or the buyer’s employer to confirm the credit situation. I think many may have moved away from the practice several years ago,” he said.
Roth said it’s always a good idea to remind buyers of this possibility, especially first-timer homebuyers. “This is a reminder to the buying public not to apply for another credit card or buy a car before closing. Lenders were always able to verify credit or employment. It’s just becoming more commonplace today for them to run a check a few days before closing,” he added.
Topics
Share this post
Member Discussion
Recent Articles
-
Estimated Closing Costs: How Mandatory Are They, Really?
- November 22, 2024
- 5 min. read
When do you have to give estimated costs? Can you use estimated costs developed by others? Let’s hit a couple of common Legal Hotline questions about the details of estimated closing costs.
-
Tri-County Realtor® Leads Efforts to Fight Hunger
- November 21, 2024
- 2 min. read
Heather Griesser-LaPierre, a member of Tri-County Suburban Realtors®, led an initiative last month to pack 238,000 meals for hurricane victims alongside fellow Realtors® and other volunteers.
-
9 Tips to Save Money When Moving
- November 20, 2024
- 3 min. read
For new homeowners, moving costs can add up quickly. Here are nine tips to keep moving costs down, from Point2.
Daily Emails
You’ll be the first to know about real estate trends and various legal happenings. Stay up-to-date by subscribing to JustListed.