Notes From The Mortgage Insider

Note: This article is reprinted from Margie Hofberg's Newsletter dated June 20, 2011.

The cost you might end up paying for the "20% Off If You Apply For a Kohl's Charge Card Today" deal ...

This is my third installment in a series about the many new rules and requirements which borrowers and originators have to deal with in order to originate a mortgage loan.  This week I will discuss the rules applicable to "new credit."  But before I can tell you what new credit is, I have to explain "old credit."

To start with, a borrower's credit history is not static. It is dynamic -constantly changing with every monthly reporting cycle. On the other hand, a credit report is static. It is a snapshot of a credit history at one particular moment in time. Since it would be highly impractical to update a credit report every day during the application process, standard underwriting practice allows a loan to be approved based on a credit report that is no older than 90 to 120 days at the time of closing.

But ... and there is always a "But" ... What about credit inquiries? An inquiry is a "credit check," usually by a potential new creditor. A recent inquiry appearing on a credit report tells the underwriter that the borrower has been applying for credit elsewhere. The borrower will have to explain the inquiry and if it is due to an application for new credit then the loan will not be approved until the underwriter is able to confirm the terms and amount of the new credit. At the very least this will cause the closing to be delayed until the new creditor reports the account activity to the credit bureaus so it can be included in an updated credit report.

So now you are wondering what exactly does Kohl's have to do with this? Kohl's (and many other stores) will offer you a bonus if you apply for a store credit account at checkout; typically 20% off of the total amount of your purchases that day. Well, if you are in the process of obtaining a mortgage when you take them up on that 20% deal you are very likely going to delay your closing while that new credit account is verified.

So wait until after closing - then go shopping! Have a great week.

Margie Hofberg, President, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts her weekly Newsletter simply click on the Subscribe button below. To be added to her weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.