Mortgage Borrower Alert: After June 1, Lenders Will Run Your Credit Twice During Loan Process
Effective June 1, anyone looking to obtain a home purchase or refinance loan will most likely have their credit run twice during the loan process: once in the beginning pre-approval process like normal, and again prior to loan funding. This process will apply to most loan amounts up to $729,750 because of the recently announced Fannie Mae Loan Quality Initiative (see Undisclosed Liabilities Q&A top of page 3), which includes many new quality control measures lenders must follow when underwriting, approving, and funding loans—but this one is the most important to call out for consumers right now.
Why Run Credit Twice?
The purpose of this guideline is to make sure that borrowers didn’t go out and open up new credit accounts while in process of being approved for their home purchase or refinance loan. Borrowers sometimes don’t tell their lenders about their non-mortgage activities, but going forward you should definitely let your lender know of any other credit card, car loan/lease, student loan, business loan, or any other type of credit application you might be processing while obtaining a home loan; you should also inform your lender of any current or planned credit card or other purchases you intend to make during the home loan processing period—if any new credit activity is revealed by this newly-required prior-to-funding credit report, the loan won’t fund because it will have to be re-underwritten and approved with whatever new debts or new credit accounts might show up on the new report.
Loans are usually tied to rate locks for a specific period of time, so if any new credit activity is revealed by the prior-to-funding credit report that then causes a funding delay, it’s also likely to cause a rate lock to expire, which could mean additional expenses to extend a rate lock. Unfortunately it’s one more landmine to navigate during the home loan process, but it can be avoided by being aware of this new guideline.
Are All Lenders Requiring Two Credit Reports?
Most lenders sell loans up to $729,750 to Fannie Mae or Freddie Mac (even if that lender’s name stays on the monthly statements you receive), and most lenders are saying that this prior-to-funding credit run will be performed regardless of whether they intend to sell the loan to Fannie Mae or Freddie Mac. Each lender implements Fannie (and Freddie) rules like this slightly differently, but it’s a good idea to assume this will happen as part of your loan process unless your lender definitively tells you otherwise when you begin the loan process.
What It Means For Your Credit Score
The three bureaus who issue credit scores—Equifax, Transunion, and Experian—have credit scoring models that are smart enough to know that people shop for mortgage and auto loans, and as such, they don’t reduce credit scores for multiple mortgage inquiries that occur within a 45 day window.