Hello,

Did you know that all lenders do a final “Credit Refresh” just before closing on a loan?

This is a soft pull, so it doesn’t show new scores.  It will, however, show any new activity the buyers have had on their credit report.  This includes new accounts that were opened, any current accounts that have had major increases or decreases in current balances, and any new credit inquiries. If any of these items show up on the final credit refresh, it could delay or even jeopardize closing. 

So, what kind of problems can these activities cause?

New Accounts

If a new account is opened during the loan process, especially if the info is not communicated to our processing team, it will cause panic at the end of the process (that could possibly have been avoided).

First, we need to get a current statement for the new account.  The statement must show the current balance and payment amount due.  This new payment will then be calculated into the buyer’s debt-to-income ratio.  If we’re already tight on their ratios, we may have to come up with a plan to decrease their debt.  If we must go this route, it typically delays the closing from 7-14 days depending on how much needs to be paid off and how much funds the buyer has available to them at the time.  If all their funds are tied up for the closing and down payment, this can be a serious issue.

If they obtained a new loan and paid off any accounts with that loan, we may even have to pull a whole new credit report to see the effect the changes have on their credit score.  And pulling a new credit report can cause far greater issues and delays.  So, long story short, we want buyers to avoid opening ANY new accounts during the loan process!

Major increase or decrease on current balances

This refers mainly to credit card balances as we know those can fluctuate up or down quite easily.  The underwriter is going to compare information on the new credit refresh to the actual credit report that is on file.  If there are large changes in balances between the 2 reports, the underwriter may question it and want documentation for any changes.

Increased balances cause increased minimum monthly payments, which may require us to provide a statement showing the new balance and payment amount.  And again, if the payment does increase, we’ll have to use the higher amount in the debt-to-income ratios and verify we still receive approval with the higher amount. 

On the other hand, large decreases in balances can cause issues as well, though less likely.  For example, the credit refresh may show an account paid down by $5000.   The underwriter could question where the funds came from to pay off that account.  Assuming the buyer needs funds for closing, or they need payment reserves at closing, they may ask for an updated bank statement to show they still have the required amount of funds and didn’t spend it all paying down debts.  If the statements do not show any large payments being made out, they could again question where the money came from to pay down the accounts.  We would have to supply documentation to source the funds that were used.

New Credit Inquiries

This is the most common item that shows up on the Credit Refresh and is usually easy to clear up.  It does, however, typically cause a delay of about a day or two.  If a new inquiry shows up, we must get a letter of explanation regarding the purpose of the new inquiry and the buyer must confirm whether a new account was opened or not.

New Collection Accounts or Judgments

These can be the most detrimental when found on the final credit refresh.  As soon as a new collection or judgment appears, we’re required to pull a brand-new credit report to see how the collection or judgment affects the buyer’s credit score.  The buyer must still qualify with the new credit scores.  And judgments must be paid off in full before we can proceed.  There may be additional conditions added by the underwriter and it could affect the overall approval of the loan.

The moral of the story…

The most important thing for buyers to know is that anything they do involving credit during the underwriting process may affect their ability to close on their new home. We communicate this with our buyers, but as a realtor, if you can do anything to reinforce the message it will help!  We know how excited people can be to begin to furnish and decorate their new homes, but they really need to hold off on major purchases involving credit until AFTER closing!

If buyers do end up doing anything that may affect their credit during the underwriting process, it’s important that they let us know right away. It’s much easier to obtain the information during the loan process, than to find out the day before a scheduled closing.  If we know about a new account the day it’s opened, we can typically get all the information needed and cleared up while the underwriter is reviewing all the other loan conditions. 

If you’re not sure if something a buyer does will have an impact on credit, please ask us!  We will let you and the buyer know how to proceed in a way that reduces the impact on the loan process and the closing date. 

Let me know if you have any questions. Thanks, and have a great week!

Thanks,

Kristina

Kristina Heath Owner/Mortgage Loan OriginatorPerformance Mortgage

O: 937-548-8222
C: 937-459-7524
F: 937-548-8322 
E: kheath@performancemortgageone.com

700 Wayne St. Greenville, OH 45331
www.PerformanceMortgageOne.com