Consumer Credit Lending Guidelines to Know When Refinancing
There are some consumer credit guidelines that may affect you towards the end of your mortgage application.
Closing Out Credit Cards
If you are applying for a cash-out refinance, it may be necessary to close out the credit cards that you are paying off at closing.
If the monthly payments make your debt-to-income (DTI) ratio go above the max qualifying ratio, the Underwriter will require that you close the credit cards so that they can no longer be used.
One fast way to provide proof to the Underwriter that your credit cards have been closed is to perform a credit supplement. A credit supplement is a report ordered by your loan processor. It is issued by the credit agency that is used to verify information.
Credit supplements require a third party to be on the phone with you and the credit card company at the same time so that information can be verified and relayed back to the Underwriter in a confidential and reliable manner.
Verifying No New Debts
Underwriters must also verify that no new debt has been acquired since you applied for your loan.
The day that you call to apply for a mortgage application is generally the date your credit is pulled. There is a gap between the date your credit report is pulled and the date your loan closes. Underwriters need to verify that no new debts have been opened since your credit report was pulled.
Underwriters may ask you for a Letter of Explanation (LOE) to affirm that no new debts have been opened since your credit report was issued. Some Underwriters have a specific form they will ask you to complete. If new accounts have been opened, your credit report may be re-pulled before your loan is cleared to close.
Another way Underwriters verify that no new debts have been opened is by pulling a new credit report after your loan closes, but before it funds.
Consumers need to be aware that any new debts or late payments may make them ineligible for the closing or the funding of the loan, even if they initially qualified.
Word to the Wise
Meridian Home Mortgage recommends that while pursuing a mortgage you do not open any new debts and that you continue to pay all of your bills on time. This will ensure that your mortgage application goes as smoothly as possible.
As always, our Personal Advisors are here to answer any questions you may have about the mortgage process.