I'm in the midst of applying for my first mortgage loan. So far, things are going good - the pre approval went smoothly (after I scrambled to have the "dispute" comments removed).
I haven't made an offer on anything yet, but it is definitely on the horizon. To prepare, my LO (going thru WF for 203k rehab) gave me a "document checklist". Most of the items on there are standard - W2's, paystubs, bank statements, etc.
But, there is one item I'm a little concerned about. They want an explanation for inquiries on my credit reports. There are 3 in total - HSBC (7/2010), Alliant CU (8/2010) and Citi (9/2010). I can explain them away, no problem.
My question is, does this raise a red flag for underwriters? Also, is there anything specific I should say in the letter?
All they are asking for is the purpose of the inquiry and whether an account was opened. For HSBC, no account was opened. For Alliant, I refi'd my car and got a $15k visa (zero bal). For Citi, I opened a $4.9 CL CC ($300 bal). I guess I'm wondering how much more I should say besides the facts (ie, should i rationalize or promise to keep the balance at zero).
Here's the exact wording from the document checklist:
A typed or hand written letter dated and signed by all borrowers explaining inquiries on the credit report. The letter needs to
address two items. #1 – Why was your credit pulled (did you apply for something?). #2 – Did you open new accounts as a
result of the inquiry? Per the credit report, here is a list of companies that have pulled your credit:HSBC, Alliant, Citi
Just explain the facts.
Whether or not it will have an affect is up in the air. If your file is really strong it will not matter at all. Underwriters do not like to see any new credit lines right before getting a home loan. If your file is marginal or your DTI is pretty tight, they are going to be worried about why you need 20K in extra credit and whether or not if you do run those balances up if you could still pay. In a case such as that they may want to see those credit lines age a little bit and develop some history prior to a loan.
Again though, if your file is strong, this should not be a big issue at all.
Thanks for the info. I'm not sure on the strength of my file, my scores are below. I have no lates in the last 4 years; this is the only issue that came up (so far), and they are asking for the LOE before my file gets sent to underwriting.
If the underwriter balks at the new accounts, would it be acceptable to close the accounts?
The truth is I was not planning on buying this year but a really good opportunity came up. I didn't app for new accounts because I needed them for any specific purpose...I just wanted to season my file a little before apping for a mortgage "next year". Now suddenly "next year" becomes "this year" and i'm in trouble!! Arrrggghhh.
If your DTI it going to be solid, it probably is not an issue. One thing is that adding debt to your file is not really a way to improve your credit file unless you had no open credit lines, and then only if you are going tohave at least a year for them to age out. My guess is you will have laready taken the hits for the inquiries and new accounts, but be aware that it is quite possible that your FICO is going to take some dings if those accounts have not been fully factored into it yet. I am geussing that they have though.
OK, thanks, good to know. So glad I have these forums to calm me down and answer all my questions because I have so many. I think at this point i have read nearly every thread on the mortgage board.
I have some open subprime accounts - first premier (2) and an orchard bank account that I was planning to close as the annual fees became due....and use these two new accounts as my only CC's. Now that i'm apping for a mortgage I'm not going to do anything with them but that was my initial plan. For now I'll just leave everything as is. Once I get a house I will be closing out the subprime cards since I never use them anyway.
All o fhte new accounts originating from the inquiries are showing on the CRA's so I'm guessing they're factored into my score...?
I had to explain the inquiries that were made within the last 90days was no big deal. The LO wanted to know any new accounts from the inquiry that were not listed on my report. eg. an inquiry from Capital One, what was it for and did this create an account. They're looking for anything that will affect your DTI, at least that's what I was told.
...All o fhte new accounts originating from the inquiries are showing on the CRA's so I'm guessing they're factored into my score...?
If they're on your reports, they're in your score.
Mortgage lenders would rather not see new accounts right before a mortgage app, as you are discovering. And they did result in a score drop for new accounts. Not the end of the world, though.
If you're doing the final tweaking of scores, be sure that all but one of your cards reports $0, and the remaining card reports something tiny, like $10 or $20. Then be sure to pay that off before the due date, which is easy to forget. To control the amount that reports, just go online and pay 4-5 days before the statement date. For your HSBC card (and Orchard or US Bank cards if you have any), do this 4-5 days before the last business day of the month, because these cards report your balance as of then, instead of as of the statement date.