Mortgage Minutia Minute

Realtors and borrowers don’t believe me when I tell them about how painstaking the mortgage process is compared to 5 or 6 years ago.  So today we launch the Mortgage Minutia series where every other week I will walk through the mortgage process step by step and illustrate the pitfalls associated with each stage.  

In the end you will have complete road map that will help all parties navigate the process and offer consumers a list of questions to ask to determine if their lender is steering them along the correct path. 

As I have said in the past it all begins with the credit!

Mortgage Minutia #1– the Credit Report and Trade lines.

Last week I had two calls from borrowers whose mortgage applications had been declined (of course after they had been pre-approved).

In fact both of the calls that came in last week were from buyers who did not have enough active credit to be approved in the programs they applied for.  This was true at their pre-approval process but was missed by the lender.  So they had their offer accepted, paid for an inspection and an appraisal, but were ultimately declined for their financing. 

When evaluating a credit report a lender looks at far more than the credit score.

·         Trade Lines: each item of credit on a credit report is called a trade line.  Many programs have active trade line requirements.  You may have 10 pages of credit but only one active trade line.

            o   To be active you must have used the credit regularly with in the past 12 – 24 months.

            o   Just having an open account with zero activity does not help.

            o   Some programs have requirements as to the type of credit you must have.

·         Many first-time buyer programs, loans requiring mortgage insurance and jumbo mortgage programs have minimum active trade line requirements; generally they want to see three.

·         A trade line requirement can be easy to miss at pre-approval, either because the loan officer doesn’t catch it, or the borrower has pages of credit and they didn’t look to see how much of the credit was active.

First question first-time buyers, low down payment buyers and jumbo borrowers should be sure to ask your lender:

“Do I have enough active trade lines for the program you are presenting to me?”