Significant Financial Changes Before Loan Closing
The short answer is, it all depends; borrowers are advised not to apply for new lines of credit leading up to a home loan application, they are also urged to maintain a record of steady, on-time payments even after the loan has been approved. Why?
A participating FHA lender is required to document and make loan approval decisions based on any “significant changes” to a borrower’s financial position. A lender who detects things that look like the borrower is running into financial trouble may have an obligation to look into the matter further to insure the borrower is indeed a good credit risk. You can pass the initial credit review with flying colors, but if you don’t maintain the acceptable credit and payment activity that made you a good risk in the first place, the lender could reconsider the decision to approve the loan before it closes.
Your new home loan is a serious financial commitment. Applicants who experience financial changes before the loan has closed may find themselves being asked by the lender to document and explain those changes--in our example above, the overdraft charges are considered serious enough to require an explanation; could they indicate a shift in financial position for the borrower? Maybe, maybe not, depending on circumstances.
And that is a big part of the reason the lender requires a letter of explanation. This is an opportunity for the borrower to explain the circumstances to the lender rather than having a judgment made based simply on the data.
Much depends on circumstances but a borrower should always be careful with credit, checking accounts, and other commitments all the way up to the time of loan closing to avoid the need for a lender’s inquiry.
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