Want a lender to delay or even cancel your mortgage closing? Then change your "borrower circumstances" between the day you apply for and the day you close a home loan.
Lenders have gotten stricter in response to the mortgage meltdown. The latest tightening of the screws comes from Fannie Mae. The mortgage titan's Loan Quality Initiative, which went into effect June 1, requires lenders to track "changes in borrower circumstances" between application and closing.
The rules aren't new, but Fannie will enforce them more vigorously. For borrowers, it means certain actions are likely to delay or otherwise mess up a mortgage closing.
"Any change in circumstance could affect and delay a borrower's closing on a transaction," says David Adamo, CEO of Luxury Mortgage of Stamford, Conn.
Following are three things borrowers can do to mess up their next mortgage closing.
Get a new credit card or auto loanIf you want to implode your impending mortgage, get a new credit card or auto loan.
Lenders have long admonished mortgage applicants to avoid getting new credit cards and auto loans while home loans are in underwriting. Fannie's Loan Quality Initiative adds urgency to this request.
For example, picture a borrower who gets a car loan a week before closing on the mortgage. The mortgage lender doesn't know about it. Later, the borrower misses a couple of mortgage payments.
Fannie Mae can look back, discover the undisclosed auto loan and make the lender buy back the bad mortgage. That's a money loser for the lender.
So at the eleventh hour, most lenders check credit for new accounts.
Even merely opening an account -- without charging anything to it -- can be a mistake.
Retailers often offer discounts to customers who apply for store credit, Adamo says. "That is something that most consumers will take advantage of, and even something as benign as that could affect a borrower's ability to close on a mortgage approval."
Charge up credit cardsCharging up credit cards with thousands of dollars' worth of appliances, tools and yard equipment is another surefire way to muck up a closing. It's best to leave those cards alone.
"Don't increase your credit card balances at all. Consider paying cash for everything," says Dan Green, a mortgage planner for Waterstone Mortgage in Cincinnati.
Mortgage approval is based partly on debt-to-income ratio. The lender looks at the borrower's minimum monthly debt payments and compares them to income. If the ratio of debt payments to income is too high, the borrower could be turned down for a mortgage.
Fannie encourages mortgage lenders to recalculate debt-to-income ratios just before closing. If a spending spree sends the debt-to-income ratio too high, the mortgage could be doomed. For this reason, borrowers should wait until after closing the mortgage before buying furniture, a refrigerator or a lawn mower on credit.
Change jobsChanging jobs is another good way to derail a mortgage before closing. Other potential deal-breakers include staying with a current employer, but switching from a salaried position to one where primary income comes from commissions or bonuses.
"Because the rules about any job change, especially if you go to commission or bonus, usually you need a two-year history," says Bob Walters, chief economist for Quicken Loans. "So if all of a sudden you switch from W-2 to some other kind of compensation, and you don't have the history, a lot of times that income can't be included. So all of a sudden you'll find maybe you don't qualify."
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