What do you need to know about credit checks before closing a home? When buying a home and applying for a loan, first time buyers in particular should submit to the required documentation of lenders that want to check and one of those is your credit score.
Will the lender pull my credit score more than once? This is a common question especially among first time homebuyers. The simple answer is, yes. Lenders will check credit in the preapproval process and do another one before the closing.
Preapproval: Initial Credit Check
In the start of applying for a loan and during the preapproval process, you need to self-report your financial information because lenders want to check your credit score, along with your marital status, social security number, residence history, debt balances and payments, account balances, foreclosure or bankruptcy confirmation in the last 7 years.
But these are not the only information required by lenders.
They will also verify these financial details once you’re ready to have the preapproval for the loan. So they are going to require documentation that will also confirm the information you have submitted.
Next, they will also pull your credit history. In fact, you may also be required to send them a letter of explanation for each credit inquiry made in the last years.
You may also have to explain for derogatory information like a missed payment. Then, you will also be required updated or additional information once you found a home and ready to make an offer for it.
The next stage is another credit check
Having your offer accepted can take some time. The same goes to your loan before it passes underwriting. So there will be a second check before closing because of incidents that might have occurred on your credit history.
A lender will pull your credit again before closing a home to check and verify that your score is still good. Lenders also do it to ensure that their risk remain the same.
On the web: 7 ways to improve your credit score
So if you have late payments, which were sent to collections, such information is going to affect the loan. It can also be that you got new credit lines or loans and have used your credit lines. What happens is that it would change your debt-to-income ratio. This information also influences your loan’s eligibility.
The closing should occur as scheduled if the results of both the first and second are the same. But if the new report is an issue to the lender or is lower, you might not qualify for the loan. The lender may also have to return the loan application through an underwriting in the second review.
You should know that the lender would do these credit checks before you qualify for a home.
More Information: Credit Checking before Closing a Home
Listening to the mortgage lender
Many lenders will give borrowers a list of the things to avoid after sending the loan application. Some suggestions will include avoiding large purchases as well as spending much money.
These things have the potential of hitting your credit score and changing your debt-to-income ratio – both are going to trigger alarms to the lender.
Your application might be nullified due to large expenses, for example.
If you’re a borrower with high debt-to-income ratio, your loan application might be cancelled. And in some cases, you may have to pay higher interest rates due to a higher debt-to-income ratio.
Doing credit inquiries
Remember that large purchases on credit are relying on the seller’s credit issuance.
Some of these include appliance stores and car dealers, along with other companies where you have applied for a credit.
They will submit the application for a credit check, showing up being a hit against your credit and signaling high money purchase affecting the debt-to-income ratio.
But then, you might not be affected by such checks if your debt-to-income ratio is low and your credit score is high.
According to the experts, however, you should wait until your loan has closed before making big purchases.
On credit reporting
Credit reports will always follow and report every movement you’re making while credit remediation can take several months of calls and letter writing. For example, a major credit-reporting agency, Equifax, is offering a program to originators of mortgage, keeping track of applicants starting from the time that they have submitted an application until after closing. Know that even minute credit change or inquiry is flagged – and then follows notifying a lender.
Doing employment checks
A mortgage lender also checks your employment, calling to your employer and verifying if you’re still with his/her company.
That is why you should alert the mortgage lender if you have changed jobs. You must also give him employment contract or wages proof, not only the name of your employer. If your employer is selling the company and its name changes, inform your lender about it as well.
There you have what to know about credit checks before closing a home. It is done twice, during the preapproval and before closing a home. Again, do not spend much money or make large purchases and wait until you have the key to your new home.
Did you like this article on “credit check before closing a home?” Tell us in the comment section. Finally, share this article on Facebook and enlighten others today!