You can call it Big Brother. You can call it high-tech snooping. But be aware: If you are applying for a home loan, you can be sure that your credit will be checked and rechecked to make certain no hints of new debt pops up before you close on the loan.
Lenders are afraid of being forced to “buy back” loans from investors because borrowers had more debts than they disclosed at the time of application.
As a result, virtually all home loan lenders now use some form of commercially available program to keep tabs on credit files between the date of your loan application to your settlement. One of the three national credit bureaus, Equifax, offers a popular service that monitors applicants 24/7 and can detect even subtle hints that a home purchaser is planning to add debt before the closing.
Say your application was just approved. In the documents you laid out all your credit obligations and just barely passed the lender’s crucial “debt-to-income” ratio test. You’re feeling upbeat about the prospect of moving to a new home and you start thinking of things you need to buy: Furniture for the living and family rooms. New beds. TVs. Audio equipment. So you visit a couple of stores and take up their offers for low interest-rate credit lines. You apply for what could come to as much as $14,000 worth of new debt, all to be paid off monthly.
Ping! In Equifax’s computer maze, your credit “inquiries” to merchants trigger alerts. Your lender or broker is notified immediately that you are pursuing additional credit. And in this case, that $14,000 in potential new payment obligations could knock your debt-to-income ratio over the cliff. Lenders say clients can mess up transactions in all sorts of ways.
Source: The Washington Post, Ken Harney, The Nation’s Housing
