Do Not Apply For Credit Before Closing of Escrow When Buying a Home
You found your dream home and you are under contract. So what’s next? First thing first: Do Not apply for new credit between the time you apply for a home loan and the day the mortgage closes aka close of escrow. The price of ignoring this advice means you could well be turned down for the loan while you’re sitting at the closing table.
Fannie Mae requires lenders to check your credit report right before closing. Many lenders interpret that as “the day of closing.” So, if you took on a new credit obligation, the lender has to recalculate your debt-to-income ratios.
Once they get the initial approval, many soon-to-be homeowners are so excited they go out and open new credit cards assuming it’s fine because they’ve been approved. They then go and purchase items for their new home: furniture, appliances, lawn mower, the list goes on and on. What many homeowners are not aware of is that a new credit report is pulled before closing. If any new debt has been incurred since the original approval, that new debt must be calculated into their debt-to-income ratio and may throw them out of range for purchasing that much beloved new home they’ve been preparing for.
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What is Debt-to-Income ratio?
Most mortgage professionals would advise…once you start the mortgage process, don’t do anything new with regards to taking on additional debt. Do not open any new credit cards – no matter how enticing the offer – and do not buy a new car. Additionally, don’t close any accounts either unless your mortgage adviser tells you to do so. Keep in mind, you also don’t want to make any changes to your employment status, i.e.: don’t change employers even if it’s in the same line of work, and don’t switch from a salaried position to a commission-based one. When waiting for your loan to close, it’s smartest to just “hold steady” with where you are at.
original posted by our lender partner trusted mortgage adviser – Thomas Gavrey
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