March 25, 2015
A reader asks, “I am in the process of buying a new home which is scheduled to be closing is by April 30th.My loan processor had just asked me last week to write a letter explaining why there is a significant overdraft fees on my checking account?. i am worried. please advise.”
In the same way that borrowers are advised not to apply for new lines of credit leading up to a home loan application, they are also urged to maintain a record of steady, on-time payments until loan approval.
The reason for this is simple–the lender is required to document and make loan approval decisions based on any “significant changes” to a borrower’s financial position.
A home loan is a major financial commitment and a borrower who has significant financial changes before the loan has closed may find themselves being asked by the lender to document and explain those changes in the same way this reader has been asked.
The reader may not have applied for a new line of credit in this case, but the overdraft charges are considered significant and may indicate a shift in financial position for the borrower–or not, depending on circumstances. That’s why the lender requires a letter of explanation. This is an opportunity for the borrower to explain the circumstances to the lender rather than having a judgment made based simply on the data.
The lender’s action, based on what is mentioned in the reader question, is justified. It may or may not be a precursor to having the loan re-examined to see if the approval of that loan is still justified. Much depends on circumstances but a borrower should always be careful with finances up to the time of loan closing to avoid situations like these.
Do you have questions about FHA mortgage loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: