Federal guidelines require lenders to refresh credit reports before a real estate closing. We are not looking to see if a borrower's credit scores have changed, but we are looking to see if a borrower has applied for any new credit since the mortgage loan application, and also to see if any significant new debt has been added to any of the borrower's existing accounts.
Additional credit accounts or additional debt will not necessarily prevent a loan from closing, but we do need to have a written explanation addressing any new credit inquiries that show up on the refreshed credit report. If new accounts or new debt raises the borrower's debt-to-income ratio above certain tolerances, then the loan must go back to underwriting, which will inevitably cause a delay in the closing.
How can a borrower avoid these delays? It's simple: tell your lender if you have applied for additional credit or increased your debt as soon as you do it. Of course, the best thing to do is not to apply for any new credit and not to increase your debt until the mortgage loan closes, but sometimes that is impossible. Cars break down, people get sick, emergencies happen. Just please tell your lender as soon as something happens. We're going to find out right before the closing anyway, so tell us early and avoid closing delays.
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