Dennis' Mortgage Blog

Question of the week:  Can I buy new appliances before I close escrow?

Answer: Do you have cash to pay for those appliances?  Will spending the cash hurt your mortgage application file depleting funds for closing or reserves?  If the answer to these questions are “Yes” and “No” then buy away.

Will you be using a credit card or financing from the appliance dealer?  Then we need to talk before you buy that new Viking kitchen set-up.

Fannie Mae has issued new guidelines taking effect in June as it tries to tighten up on discrepancies in mortgage files that appear to occur from time of origination (i.e. when you complete initial loan application) and when Fannie Mae purchases the loan from a lender.  As such it has launched it “Loan Quality Initiative” (LQI).  On my website I have posted on several of the policy changes Fannie Mae is undertaking, here I will address just the credit report changes.

While still murky as to how it will be addressed by different lenders, Fannie Mae wants all loans to comply with a pre-funding credit check.  The purpose is to ensure that all debts are properly disclosed and accounted for when the mortgage funds and that any inquiries that may lead to new debt or credit obligations are addressed.  What this means is that Fannie Mae is asking for another credit report to be obtained by the lender before funding to see if there are any new accounts, higher account balances or inquiries that may lead to new debt.

I have been asking several lenders how they intend to implement this policy and so far the biggest answer is “we don’t know yet.”  With ten business days before the initiative is to take place I presume they are scrambling for answers.  But under “we don’t know” I presume a new credit report will be obtained as part of the final approval process.

Because of this I advise do not buy your new appliances to for your new home until you have funded your mortgage.  Do not even have the appliance dealer run a credit report to see if you qualify for the “Same As Cash” offer as it will trigger an inquiry which the lender will want to investigate.  Which puts the mortgage application back to underwriting.  Which takes time and could cause escrow to close late and depending on timing cause the rate lock-in period to expire.

However, if when appliance shopping you are able to get the cost and what the payments will be on the financing of your new appliances.  And you provide me with the information, I can calculate your income to debt ratios with the new payment, ensure you still qualify for the mortgage to purchase the kitchen where you will put the appliances, and give the information to the underwriter.

In short the golden rule in regards to credit is once we pull your credit report do not get any new credit, increase your account balances or apply for credit.  Keep in mind that from the time we obtain a credit report as part of your pre-approval until your escrow closes could be as long as 90 days as we get pre-approved, you look at homes, make an offer, have your offer accepted and open escrow.  If any changes occur to your credit profile during that time frame I need to know to ensure a smooth and efficient closing.

Some helpful sites for you to get taken off different lists and reduce solicitations:

National Do Not Call List, (note that political calls are exempt) https://www.donotcall.gov/

National “Do Not Mail List” limits the amount of junk mail on your porch each day: http://www.directmail.com/directory/mail_preference/

This site prevents the credit bureaus from selling your information to creditors to pre-screen you for credit offers: https://www.optoutprescreen.com/?rf=t

Have a question for me?  Ask me!

In May the DOW has dropped over 1,000 points.  During the same time period Mortgage Backed Securities (MBS) have risen over 200 points as we enter trading today.  As financial reform legislation works through Congress, passing the Senate last night, that is focused on Wall Street.  As Europe continues its financial melt down.  As economic data for April shows a sputter in the slow process of pulling out of recession.  All indicators support continued low mortgage rates.

Europe has been the wild card showing how interconnected are our economies and markets across the globe.  By now, per the predictions of myself and others, mortgage rates should be at least one-half of one-percent higher than they are currently, possible as much as 1% higher, due to the Fed pull out and focus on American debt.  The Chinese went on a prolonged selling spree of their U.S. debt holdings, the Fed pulled out of mortgages, Fannie and Freddie were hemorrhaging.  But along comes the Greeks and other European nations to force investment into U.S. bonds as safe havens. 

Looking ahead, next week has several important economic data releases.  If they follow the trend for what we have seen so far this week, rising unemployment claims, flat inflation numbers, drop in consumer confidence, pointing to a stall in recovery in April we will see an absence of pressure for rates to move higher.  With MBS at their current price levels however there are plenty of itchy fingers waiting to pull out profits and reverse the now month long trend of softer rates.

One very important release this week was the Weekly Mortgage Applications Survey from the Mortgage Bankers Association for the week ended last Friday, May 14^th.  It showed a surge in refinance applications and a big drop in purchase applications.  The purchase index was at its lowest in the survey since May 1997; yes the lowest in 13 years.  Last week refinances consisted of 68% of all applications taken in the market. 

Rates for Friday May 21, 2010: After opening higher this morning from yesterday’s close Mortgage Backed Securities have retreated quite a bit as profit takers make a play and bottom feed financial stocks on Wall Street.  The market is volatile and while the trend is down I would be careful floating and gambling any rate gains already on the table.  Already this morning we have lost some of our gains, but still great rates!

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.5%                                Down 0.125%

30 year conforming-jumbo 4.625%                   Down 0.25%

30 year FHA    4.375%                                    Down 0.125%

30 year FHA jumbo 4.625%                            Down 0.125%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked. 

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Get ‘em while they are hot.  These rates should push off anyone sitting on the fence waiting for the bottom of the market.

School carnival this afternoon, I’ll be spending late morning and early afternoon barbecuing about 45 pounds of tri-tip roasts to take to Patrick Henry Elementary to carve into delicious sandwiches.  If you want a great sandwich for $5 come on down between 3:00 and whenever we run out of meat…hopefully by 6:00!

I am available all weekend for any questions and pre-approvals.

Have a great week,

Dennis