New Credit Card Charges Matter

New credit card charges & mortgage approvalArizona mortgage applicants for the most part know that getting a new car loan or opening a new credit card is a “no-no” during the mortgage approval process.  However, what many of them do not know is that making “large” or “significant” charges on existing credit cards during the Phoenix home loan approval phase can now cause challenges with mortgage approval.   Fannie Mae and Freddie Mac are now taking an even bigger magnifying glass out of the bag when it comes to a borrower’s debt load.

What the 2 mortgage giants are doing now is looking to see if a borrower has made “significant” or “large” new “abnormal” charges after the date their credit was pulled on a credit card that existed when the borrower’s loan officer took their initial loan application and pulled credit.   Why?  They say that if a borrower makes new large charges, the resulting higher minimum monthly payment should be factored into the borrower’s ability to qualify for their new mortgage.  The good news is that “typical” charges and “typical” increases/fluctuations in credit card balances will not be an issue and will not be held against the borrower’s debt to income ratio.  See below for more on what “typical charges” are.

UDM Movement – Just Beware and Be Careful

Fannie and Freddie calls increased debt that occurs after loan application”Undisclosed Debt” and this new process of monitoring it and detecting it is being called “Undisclosed Debt Monitoring.”   In fact, UDM is now the #1 cause for Fannie, Freddie and other investors making Arizona and national mortgage companies buy performing loans back post closing.  It gets more interesting every day doesn’t it!   That is what you have me for.

For clients that are looking to go shopping for appliances and pay for cross-country moves on credit, my advice is the same as it was before (check our “do and do not list – click here).  Do not make any large purchases and ALWAYS call us before doing ANYTHING that might seem like a large purchase before making a decision.  We stress this at multiple points in the overall process.  The difference is that the warning (while the same as before UDM) is now more significant and far-reaching.  Previously, the primary motive for the “no buy” warning we give was that Fannie/Freddie had granted lending institutions permission to regenerate a new credit report just before funding the loan to see if any new debt had been obtain (and to see if cores had changed).  While my company does not do this, it always pays to play it safe in mortgage-land.  NOW, this new debt monitoring process – “UDM”  can be tracked through/by a third-party company called Fraudguard.  As such, borrowers need to add an extra degree of seriousness to their interpretation of and adherence to our warning.  Please share this article with the share link below with anyone you know that may be purchasing/refinancing.    However…

Don’t Panic – Big Brother May be Watching But…

The extra layer of scrutiny has us clamping down and adding one more clear layer of communication out to each of our clients however, after I studied the release on the new world of UDM it appears that what they (investors) are really after are those folks that have credit cards that have been sitting at $0 balances for some time that all of a sudden jump up significantly.   HOWEVER, play it safe and don’t buy furniture or make large purchases once you have completed a loan application and until your loan has funded.  DO continue to live life and pay for gas and groceries along with other purchases as long as they are within your normal pattern of spending.  If you have any questions about whether a charge is “typical” – ask an expert first – charge your credit card later.

This is in part another attempt to find reasons/ways within the current reps and warrants that exist between investors and lenders to force lenders to put loans back on their shelves.  Reps/warrants are the guidelines that if violated can make it so a lender has to buy its loan back.

If you have any questions about what to do / not to do my advise is don’t do anything and call or email us.  Again, safe is the best choice when it comes to getting a new home loan.  Don’t let this spook you just be sure you are educated, prepared and stay clear of trouble.   It is that easy.  My company will continue to operate how we have which is not to look to find ways to decline our valued clients however we do have to make the mortgage Gods happy too!

By Jeremy House

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