So far, buying a new home has been both exciting and hard work.  First you found a house that really fit you, and then made sure that you could afford it.  You carefully planned for what the future might bring, while balancing it against your current budget and needs.

Next, you’ve looked around, compared lenders, and decided to get a credit union mortgage due to the credit union’s customer focus and lower costs.  You have filled out all the paperwork, and submitted your mortgage application.  Congratulations!  You are in the home stretch.  However, the home stretch isn’t home base yet.

First Final Check

Lenders have tightened their underwriting guidelines in response to the mortgage meltdown.  Fannie Mae has recently enacted its Loan Quality Initiative, which requires lenders to track changes in “borrower circumstances” between application and closing.  Therefore, here are a few missteps you must avoid to not waste your time and effort.

First, don’t apply for a new credit card or new auto loan.  While lenders recommended that applicants avoid new credit while their home loans are in underwriting, Fannie’s Loan Quality Initiative adds urgency to this request.  Toward the end of the process, your credit union mortgage loan application will be checked for any newly acquired credit.  If Fannie Mae discovers you got a car loan or a new credit card in between application and closing, they can turn down your loan or make the credit union buy back the loan.  That means lost money for the credit union.

Also, be careful when you go into any store.  They may offer you their store credit card, cool promotions or discounts to do so.  If you accept, it could have a negative effect on your ability to close on your credit union mortgage.  Wait until after you close.

Second Final Check

Second, don’t add to your credit card balances or suddenly pay them down.  You are understandably excited to get a new home, and are watching deals and specials to find the right furniture, appliances, and tools to outfit your new home.  Just don’t act until after you close on your credit union mortgage.

Debt-to-Income Ratio

Mortgage approval is based partly on debt-to-income (DTI) ratio.  The credit union will look at your minimum monthly debt payments and compare them to your income. If the ratio of debt payments to income is too high, you could be turned down for your mortgage.  It used to be that they only checked the DTI at the beginning of the process, but that has changed.  Now, they will check your balances again just before closing your credit union mortgage.

If you must purchase something major during this critical time frame, pay in cash.  However, don’t deplete your savings account in order to do it.  The credit union knows that your balances fluctuate as you pay your bills, get gas, etc.  However, they expect you to keep 3 – 6 months of expenses in savings.  Therefore, if you spend too much, you may find they aren’t willing to approve your credit union mortgage.

Third Final Check

Finally, avoid any job changes.  Changing jobs is another way to derail a mortgage before closing.  Like the purchases, if you are going to do this, schedule after the closing.  Even if you are staying with your current employer, a promotion or job change could cause problems if you switch from a salaried position to one where your primary income will come from commissions or bonuses. What you may not realize is that almost all credit unions, if you get paid by commission or bonus, will want at least a two-year history.  A switch will leave you without that history, the new income won’t be included, and you will suddenly no longer qualify for your credit union mortgage.

Home Base at Last.

So, that’s what to watch out for.  Over the next four to eight weeks be extra careful.  Avoid new cars or credit cards, minimize using the credit cards you do have, delay all major purchases, and keep your current job.  Once you have reached home base and have closed on your credit union mortgage, then feel free to enjoy the fruits of your success in your new home.

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