Almost Home Buyers pay for Second Credit Report

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“This isn’t the right time to buy his and her BMW’s.”

My Northern Virginia real estate clients have heard me deliver that line for almost two decades when we discuss putting together an offer to buy a home. It’s meant to be funny, but also a very serious warning.

Real estate sales contracts will outline the type of mortgage financing that the buyer is going to obtain to buy the house. Based on that information, a home seller will agree to accept the offer making it a ratified or binding contract. Still following?

No new lines of credit
Don’t change jobs
Don’t move balances on your credit cards
It’s all about the ratios and documentation

The Realtor sales contract used in Northern Virginia real estate sales specifically outlines that the home buyer will comply with the mortgage lender’s requests in a “timely and diligent manor”. But it also outlines that failure to comply with the lender requests or committing an act that prohibits them from obtaining the specified financing may result in DEFAULT.

NVAR Regional Real Estate Sales Contract ¶26: DEFAULT

The Washington Post Saturday Real Estate Section (May 15, 2010) had an article about mortgage lenders reviewing credit reports an extra time, just before closing, to make sure the buyers haven’t impacted their financial status with other new lines of credit. (Credit Reporting Agencies can also send “alerts” to the mortgage lender of any changes) For example, if they see that you now have a credit line at McLean Furniture for $10,000 that wasn’t on you first report, well then you’ve got some ’splainin’ to do.

This extra scrutiny may just blow your deal, cost you the Earnest Money deposit and open you up to pay extra damages to the seller for breach of contract (please include attorney’s fees).

This new “second credit report” at the last minute program began June 1, 2010, but lenders have typically re-verified employment just before closing. Rhonda Porter called this a new “Speed Bump Prior to Funding Your Mortgage” which is sure to cause some headaches.

So, here is my professional recommendation: once you are involved in a real estate contract restrain yourself and do not make any new credit applications… you are on thin ice!