Reader question: “I know mortgage lenders check your credit reports and scores when you apply for a loan. But what about later on in the process? Do lenders run another credit check just before the closing day? I’m concerned about something that might have hit my credit during the underwriting process.”
You’ll get people who answer this question both ways. Some will say yes, mortgage lenders check your credit again right before closing. Others will way no, they only check it once on the front end of the process, shortly after you submit a loan application. There are differing views on this subject because, quite frankly, it varies from one lender to the next.
Another Credit Check Before Closing?
Here’s what you need to know. There is a chance your mortgage company’s underwriter will review your credit reports and/or scores before you close on the loan. So it’s best to avoid any major purchases or new lines of credit until after you’ve been “cleared to close.” This is when the underwriter completes his/her review process and gives the loan a green light to proceed to closing. Up to that point, an additional credit check may be completed. And if the underwriter finds some new information that wasn’t there before (like a newly reported debt obligation that skews your debt-to-income ratio), it could send your loan off the tracks.
So what’s the big deal? Why would a lender check your credit again before closing? What are they looking for? Primarily, they want to make sure you can still afford the loan, and that your debt-to-income balance hasn’t been shifted by new purchases or credit lines.
Your loan won’t move on to closing until the underwriter says it meets all guidelines imposed by the lender and secondary authorities (FHA, Freddie Mac, etc.). This is referred to as being “clear to close.” In some cases, the lender will perform one last credit pull shortly before closing day, just to make sure nothing has changed with regards to your debts and open credit lines.
I think we will see more of this in 2014, as a result of new lending rules. The Ability-to-Repay rule, which took effect earlier this year, requires lenders to do a thorough review of the borrower’s payment capacity, to ensure they have the means to repay the loan. Among other things, they must consider the borrower’s total debt loan — which can be found through credit reports. It’s entirely possible that more and more lenders will start doing another credit check before closing, just to cover their bases. But I’m conjecturing here.
To answer your question, yes, some lenders do a second credit pull shortly before the loan closes. They do this for the reasons mentioned above, and possibly for other reasons I’m not aware of. Will this happen to you? Time will tell. My advice is to hunker down and wait. I would not point out any potential credit issues to the lender unless they ask about them specifically. But it’s your decision to make. I don’t know enough about your situation to offer specific advice.
Brandon Cornett
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author