The New Mortgage Approval Process
In response to the foreclosure surge since 2007, Fannie Mae has begun a ‘Loan Quality Initiative’. The new requirements are intended to reduce the number of bad loans. The new program shifts the responsibility of mortgage guideline compliance back to the individual banks responsible for making the loans.
The basic steps for obtaining a mortgage are:
1) Apply for the mortgage
2) Bank runs a credit check
3) The application goes through the underwriting and approval process (this is the step where an appraisal of the property takes place)
4) Credit is checked again (this is a new step in the process)
5) The loan is funded
With the new Loan Quality Initiative lenders are required to verify that the applicants credit profile has not changed since the original credit check was run. Some things to avoid while waiting for your loan to be approved and funded are: Applying for a new credit card (this includes department store cards or buying new furniture on credit), running up the balance on existing credit cards and/or financing an automobile or other major purchase.
Here are the 3 things the underwriter is checking during this 2nd credit check:
1) Recalculate your debt-to-income ratios using your minimum payment figures. If the debt-to-income ratios exceed Fannie Mae’s threshold, your loan will be denied! * don’t run up credit cards prior to closing
2) Re-check your credit score. The score will be used to asses loan-level pricing adjustments. It can also lead to a denial if your score falls below Fannie Mae’s minimum requirements! * pay your bills on time - including utility bills
3) View the Credit Inquiry section of your credit report to find ‘non-disclosed’ debts. If items are found you will need to provide documentation regarding the debt & this will be used to re-underwrite your mortgage. Many times changing your interest rate & monthly payment. * DO NOT apply for new credit until AFTER your loan is funded!
This may seem like consumers are being targeted, and it will be nearly impossible to get a loan. In the end, these are things that should have been monitored all along. If these new standards had been upheld from the beginning, we would not find ourselves in the mess we are in right now. Property values would not be declining because of an surge in foreclosures. So remember, 
don’t use your existing credit cards, don’t apply for new credit and pay all of your bills on time! If you would like more help understanding the mortgage approval process, or are looking for help in finding a home or financing a loan, please give us a call, visit http://www.thekuchtas.shorewest.com or send us an email! The Kuchta’s, Kelly & Colleen
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Colleen Kuchta
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