August 2, 2018
Why should borrowers wait until after the closing date to apply for new credit?
This is a very important issue that FHA borrowers need to be aware of before applying for a new purchase loan, FHA construction loan, or even a refinance loan.
What makes the credit issue so important once you have been pre-approved for a home loan and start house hunting? Why should you never apply for new credit once the loan application has been submitted and you await final loan approval and the closing date?
Home loans require the lender to check more than once to make sure the borrower is credit-worthy and can afford the mortgage loan. These checks may be automated or may be done manually by the lender depending on circumstances.
Just because your home loan application has been submitted and even if it appears that everything is working in the borrower’s favor does not mean that the loan is “bulletproof” and can’t be cancelled due to a borrower’s changing credit position.
That is why it’s best not to change jobs, apply for new credit, or even run up further expenses on existing credit cards. If your debt ratio changes or looks like it will change in such a way that it’s no longer within the lender’s standard range of acceptability, your home loan could be at risk.
FHA mortgages are more forgiving credit-wise than conventional loans, it’s true. But even with those more lenient standards (which may or may not be supplemented by the lender’s requirements) there are limits to what the lender is permitted to accept with respect to changing credit issues.
If your credit is improving, that’s a change the lender can live with, but if your credit picture begins to look more risky, the lender may begin to reevaluate your ability to afford the loan or meet lender standards.
Avoid opening any new lines of credit until you have the keys to your new home. Even on closing day, (depending on state law and other factors) your loan may not be final until the funds have been transferred and the loan is considered “fully funded”.
Five rules for getting to your closing date on your FHA mortgage or refinance loan are:
1. Don’t be late on any payments even after your mortgage loan application is submitted and reviewed.
2. Don’t apply for any new credit until your home loan transaction is funded and you are moving into your new home.
3. Don’t close any credit accounts.
4. Don’t increase your credit card balances
5. Avoid disputing credit accounts during the home loan application process, it may jeopardize your loan. Disputes to credit accounts should be done in the planning stages of the loan and as early as possible.
If you aren’t sure how these issues can affect your loan you may need to discuss lender requirements with your loan officer; FHA loan rules aren’t the only ones that govern the process and lender standards will play an important role in loan approval.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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