Since 2010, Fannie Mae has mandated that lenders recheck a borrower’s credit prior to closing on a mortgage. If anything new arises in the credit re-check, lenders may delay closing to verify that the borrower can still afford the mortgage. In some cases, the lenders may even cancel the loan prior to closing, which could mean a higher interest rate on a new loan.
During the credit re-check prior to closing, lenders will scan for any new credit card accounts that have been opened as well as any new credit inquiries. For example, a credit inquiry from a car company may indicate to a lender that the buyer is in the market for a new car, which could send up a red flag if the buyer is going to take on more debt.
Fannie Mae’s maximum debt-to-income ratio is 45 percent – a maximum of 45 percent of a gross monthly income can be allocated for mortgage and housing expenses and other debt.
“It’s more of an issue for people on the cusp of approval where they just get in under the wire,” David Stein, the chief operating officer and a partner of Residential Home Funding, told The New York Times. “If someone was a 44 percent at the approval, if they incurred more debt at the credit refresh, and the debt goes over 45, we can’t close that loan.”
Source: “Pre-Closing Credit Checks,” The New York Times (July 5, 2013)