If you're a client of mine, you've heard me say this more than once: "No big purchases before closing!" New Fannie Mae regulations give me new reason to repeat this over and over until you don't even want to look at your credit card!
Fannie Mae's new Loan Quality Initiative (LQI) mandates become effective on June 1st. So if my no-spending-speech isn't enough, these new mandates will curb borrower's spending prior to closing (or they will risk losing their financing).
The new regulations are an effort by Fannie Mae to tighten up on underwriters and cut down on fraud from borrowers. As part of the new regulations, lenders will, amoung other things, be required to pull two credit reports. The second credit report close to closing (which is a practice for some lenders currently) could cause a delay in closing, increase in rate or loss of financing all together.
The new program requires VIRTUALLY ALL LENDERS to pull a credit report prior to closing to find out if a borrower has taken on or shopped for new debt between the time of submitting a mortgage application and closing. That includes applying for new credit cards, in store financing for home furnishings etc... If when your credit is pulled prior to closing there are numerous new inquiries, applications and the like, your closing may be delayed in order for your lender to further investigate. That means, don't apply for that home depot card - even if you aren't going to use it yet.
In addition, if you are tight on your DTI (debt to income ratio) to begin with, any large purchases prior to closing could push your ratio over the edge and derail your closing all together. I will say it again... don't buy things to fill your house before you own it!
Bottom line is this, the new fannie mae regulations are going to have a big impact on buyers spending habits before closing. This is the time to be prudent - don't worry, Ethan Allen will still be there next month.