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The decision by a growing number of consumers to block access to their credit reports in the wake of the high-profile Equifax data breach earlier this year underscores how important it is for real estate professionals to discuss the mortgage process with home buyers, ideally before embarking on a search for a property, industry experts say.
Requesting that a credit bureau place a freeze on credit information can help prevent fraud, but doing so can also disrupt a real estate transaction by stopping a lender from collecting information it will need to underwrite a mortgage, says Mike Eastman, vice president of Washington First Mortgage in Fairfax, Va.
Even a freeze at just one of the three national credit bureaus, which include Experian and TransUnion in addition to Equifax, could be problematic, because mortgage providers need to pull credit reports and scores from all of the bureaus in order to process mortgages that are destined to be transferred to Fannie Mae or Freddie Mac, Eastman says. Known as conforming loans, these types of mortgages account for a large percentage of home loans made in the U.S., and cannot close without what is known as a tri-merge credit report.
If they have frozen their credit, applicants must temporarily grant the mortgage provider access to all three of their credit files, which typically involves using a PIN issued by the credit bureau when the freeze is activated and can take as little as a few minutes. When thawing their credit information, borrowers can allow any creditor to see it or limit access to a specific lender.
“Agents should notify their clients that when they call a lender to apply for a mortgage, they need to say if they have a credit freeze right away,” Eastman advises. “You have to unlock the door and let me peek in, and then you can lock the door again.”
Real estate professionals should also advise clients that they will need to leave their credit reports accessible until they close on their home purchase, says Marshall Chapman, a loan officer with Access National Mortgage in Reston, Va. This is because lenders generally monitor a mortgage applicant’s credit activity continuously to ensure the borrower doesn’t take on new obligations before the loan is finalized, he says.
While it may be easy to remedy a lender’s inability to pull a credit report because an applicant’s file is frozen, anything that introduces the potential for a delay in the mortgage process can cause problems, real estate professionals say. For example, if a lender has to backtrack when pulling a borrower’s credit reports because information is unavailable the first time, the extra time involved could cause an interest rate lock to expire, says Gitika Kaul, a sales associate with Wydler Brothers Real Estate, which operates in the Washington, D.C., area. “One of the biggest issues buyers need to be aware of when their credit is frozen is that the mortgage-approval process can now take more time. Buyers should be prepared for that,” she says.
Chris Dominick, an associate broker with RE/MAX Gateway in Chantilly, Va., says he goes over the mortgage process and discusses credit freezes before showing properties to prospective home buyers to head off the possibility that a financial hiccup will occur later in the process, when time to sort things out may be short. “The magic move is to tell them [what they should be doing] right up front,” he says. “People don’t find it intrusive. They’re usually very appreciative.”
Developing and maintaining relationships with local mortgage companies will help real estate pros be able to present helpful information to clients about potential lenders. Although some buyers may ultimately choose a different mortgage company, many appreciate the benefits that can come from working with a lender their agent knows personally and can reach quickly, Dominick says. “Buyers take great comfort when I tell them something and then the lender tells them the exact same thing,” he adds.
Lorena Peña, a partner with the Osburn Peña Group at RE/MAX Preferred in San Antonio, says she asks clients to put her in contact with the mortgage company representative they’re working with early on in the homebuying process if it’s not someone she already knows. “I ask the buyer if they mind sharing whom they have a relationship with and if they’ll introduce them to me so we can build the team together,” she says. “I want to safeguard against disappointment.”
Peña says she also likes to talk with clients during their initial conversation about what they’re willing to spend on a home—not just what a lender says they can borrow. “I tell buyers that just because you qualify [for a particular loan amount] doesn’t mean you’ll be comfortable” with the payments, she says.
A good way to make a conversation about mortgages, credit reports, and affordability less daunting for a buyer is to position it as part of the process of putting together a competitive offer, says Yvette Allen, broker-owner of Real Estate 210 in San Antonio. “I say that I’m working to get you the best possible deal, and I can’t come in strong if I don’t know the information,” she says. “I’m trying to help you to help me to help you.”