Mortgage Lenders Simplify a Process for Qualified Borrowers
If you routinely use credit access and pay off your revolving charge account balances in full at the end of the month, you may have been “forced” to close your credit access to qualify for a mortgage loan if your debt-to-income (DTI) ratio – including that payment – was too high for the loan program requested. I say, “forced” but no lender can actually force you to do anything; they just deny your loan request.
Fannie Mae announced in their 5/26/15 Selling Guide update that going forward, revolving accounts that are paid down to zero at loan closing may remain open and no monthly payment needs to be included in the DTI ratio. With a caveat, “Payoff or paydown of debt solely to qualify must be carefully evaluated and considered in the overall loan analysis.”
If not solely to qualify, why else would a borrower even offer to pay off an account?
Up until now, if you were willing and able to pay off your revolving charge balance to qualify for a mortgage, you would have to provide evidence the account was also closed (from the creditor). The lender would then order an update from their credit-reporting vendor to verify the account was closed, and hopefully, if you waited until loan closing to pay off the account, all was good. If you chose to pay off the account prior to loan closing, then the lender would request updated bank statements to show payment had cleared your bank account. If the lender identified any significant changes to available assets that would affect the integrity of the loan application or your loan approval, all sorts of last minute hazards would present themselves. (Loans sold to Freddie Mac didn’t have this same requirement.)
After borrower’s would go through all that trouble, they typically went right back to their revolving charge account provider and opened up a new account – oftentimes losing favorable interest terms in the process.
In anticipation of the upcoming changes regarding the timing of closing disclosures in August, any small step to reduce the burden of documentation and closing delays is welcome.