Real Estate Attorney
William “Bill” Blanchard Comments on Managing Credit During the Loan Process
Reminds home buyers
that “A Clear to Close Letter Doesn’t Mean You Are Clear to Close.” Thus, buyers
are advised to manage their credit wisely
Experienced real estate attorney William B. Blanchard is
publishing comments on issues related to the closing process, advising home
buyers to pay particular attention to their credit during the loan process. His
comments arose from a recent experience where Mr. Blanchard received notice
from a lender that their customer’s loan was “clear to close” (CTC) and asked him,
as the Seller’s attorney, to schedule a closing. The CTC is notice that all conditions
required to fund the loan were completed, approved by the underwriter and the
loan was ready to close. It appeared the
loan was ready for funding.
On the morning of the scheduled closing, Buyer’s attorney
called and said that his client’s loan was being sent back to the underwriters
because of a credit issue that appeared on their last credit inquiry. The borrowers
were not aware that their loan required a minimum credit score. On the morning of our closing the lender ran
a quick credit check and found the couple had 2 late payments on other credit
obligations since making their loan application. The damage was a major drop in their FICO
score and a cancelled closing. Now the
buyers, who have movers scheduled, have no place to live or store furniture are
facing the likelihood that the damage to their credit will take several weeks
or months to fix.
Mr. Blanchard thus comments: “Lenders, attorneys, and real
estate agents should warn their buyer clients of the consequences of using, not
just abusing, credit during their loan application process. Equifax, a major credit reporting agency says
that on-time payments and credit history, make up 35% of a credit score. Clients need to know that missing a payment
is often fatal while an application is pending even if they’re pre-approved for
a loan, have a loan commitment or are clear to close. Loan approval is always subject to last
minute credit review.”
Mr. Blanchard explains that having a credit account sent to
collections will certainly have a major impact on credit review as will credit
utilization rate. This rate is the
amount of outstanding debt relative to the total of all credit lines. Equifax suggests that anything over 30%
credit utilization will damage a score significantly. Caution clients not to get anxious to buy new
furniture for the new home or make any other major credit purchase. Seven percent of a FICO score is impacted by
opening new credit lines. Advise clients
to wait until they have the keys in hand before going on a shopping spree. Finally, a score can go down if you transfer
balances or even pay off a card. Home
buyers need to know not to do anything that has the potential to lower their
credit score until their loan is closed and they own their new home.
Mr. Blanchard’s advice is that real estate attorneys make
credit management warnings a visible part of your client’s home purchase
counselling. If nothing more, provide
your buyers with a copy of this article or your own warning as part of your
engagement agreement. The following
caution has a prominent position in my client engagement agreement. I don’t want to hear, “you never told me” if
the loan is rejected.
Mr. Blanchard suggests a written caution along the lines of:
“Congratulations on your contract to purchase a new home and
your pre-qualification for a loan. A
word of caution regarding managing credit during your loan process. Lenders use your FICO and credit reports for
approving your loan and setting your interest rate. Your lender most likely reviewed both before
providing your pre-approval letter. Be
careful with your use of credit while your loan is being processed because your
loan can be rejected for damaging changes to your score and report. This can happen up to the time you’ve
completed your closing and have the keys to the new home. The following are
credit situations to avoid during your application process:
·
Do not use credit cards excessively. Keep balances below 30% of your credit limit
and don’t make any major purchases;
·
Do not let current accounts fall behind. Missing one payment during the loan process
can lead to a substantial reduction to your score and loan rejection;
·
Do not co-sign for anyone on a new account or
loan.
·
Do not give permission to anyone to run your
credit (by applying for new credit accounts).
The furniture for the new home can wait until you are holding the
keys. New credit inquiries will reduce
your score and can lead to denial of your credit application.”
The complete commentary on “Managing Credit During the Loan
Process” by William B. Blanchard is available on his blog at https://williamblanchardblog.blogspot.com/
**** Mr. William B. Blanchard (“Bill Blanchard”) is a Real Estate Attorney with offices in St. Charles and Oakbrook Terrace, Illinois. Bill specializes in representing real estate clients for purchases and sales as well as home owner real estate tax assessment appeals. Mr. Blanchard is General Counsel for Gaia Title, Inc. a title insurance agency and settlement services provider. The Company is owned by real estate attorneys who demand exemplary title insurance services and accurate and efficient settlement services. As General Counsel he is responsible for title examination, commitment and policy review, escrow settlement supervision and regulatory review. - Attorney Profile: https://solomonlawguild.com/william-b-blanchard%2C-esq - Attorney News: https://attorneygazette.com/william-blanchard%2C-esq#40b43d7b-94b2-48d3-b055-1979a636f1e7
