Undisclosed New Debt After Home Loan Application

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Arizona mortgage applicants for the most part know getting a new car loan is a “no-no” during the home loan process.  However,  most do not know  making significant charges on existing credit cards during the mortgage process causes challenges.

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UDM Movement – Just Beware and Be Careful

In the era of UDM, mortgage lenders must monitor for large credit card charges after a credit report was pulled.   Debt increases that occur after an initial credit report is pulled are called “Undisclosed Debt”.  As a result,”Undisclosed Debt Monitoring” (or “UDM”) is the name given to the new process of tracking borrower’s debt.

Why are we tracking debt after pulling a credit report?  When borrowers make new large charges, the new higher monthly payment is to be factored into the borrower’s loan approval.  Investors believe the new higher debt payment makes some borrowers disqualified for loan products.  In fact, UDM is a leading cause of investors forcing Arizona mortgage companies to buy back performing loans after closing.

For clients looking to shop for appliances and pay for cross-country moves on credit my advice is the same as before UDM.

  1. Do not make any large purchases on credit
  2. Call your loan officer before making any purchase you are unsure of

The difference now is that the warning is now more significant and the consequences are more significant. Previously, the primary motive for the “no buy” warning we give was to protect clients in the event that we had to pull a new credit report.  Now, with UDM in place, new large debt charges are tracked by a third-party company and lenders are notified when there is a new charge.   As such, borrowers should add an extra degree of gravity to the idea of new debt during the home loan process.

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Normal Charges Are Still Okay

After studying the UDM process at length, it appears they are after consumers with $0 balance credit cards that suddenly spike in balance.   However, play it safe,  Refrain from financing furniture or other large purchases once you have completed a loan application.  Once your loan has funded, your are off the hook and free to charge away!

Again, paying for gas and groceries along with other normal purchases should not cause issues.  When you have any questions about whether a charge is “typical” ask an expert first.

By Jeremy House

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