Inquiries: Recent Attempts to Obtain New Credit
When someone applies for a mortgage, the lender looks at many parts of their financial history. One important part is the borrower’s credit report, especially the section that shows if and when they have asked for new credit. These are known as inquiries.
What Lenders Look For
The lender checks the credit report for any inquiries to see how many times the borrower has asked for new credit and how recent these requests are. If there are a lot of inquiries over a short period, it could mean the borrower has been trying to get a lot of new credit. This can be seen as risky because it might mean the borrower will have more debts to pay off, or they are in a financially tight spot.
A few inquiries here and there are normal. But a lot of inquiries, especially if they are not related to each other, suggest higher risk. This risk goes up even more if the borrower also has many new accounts they’ve recently opened or if they have accounts they haven’t paid on time.
What Happens Next
If the lender sees recent inquiries on the credit report, they need to do some digging. They must make sure the borrower hasn’t gotten any new credit that isn’t shown on the credit report or wasn’t mentioned in their mortgage application. New credit can affect a borrower’s ability to pay their mortgage because it might mean they have additional monthly payments.
Let’s say a borrower applied for a credit card or a car loan just after they applied for a mortgage, and they were approved. The lender needs to know about this new debt. They have to check how much the borrower has to pay for this new debt every month. Then, they calculate if the borrower can still afford the mortgage payment along with their other debts.
If the borrower has indeed taken on new debt, they must provide proof of it. The lender will then include this new monthly payment in their calculations. This is to make sure the borrower can handle their new mortgage payment plus any other debts they have.
References
For more details, visit Inquiries: Recent Attempts to Obtain New Credit of the Fannie Mae Selling Guide.