Do Mortgage Lenders Check Your Credit Before Closing?

As you near the finish line of buying a home, you may be wondering if your lender will check your credit again right before closing. The short answer is yes, lenders typically recheck borrowers’ credit shortly before the closing date.

This final credit check serves an important purpose in the mortgage process. By taking one last look at your credit profile, lenders can verify that your finances haven’t changed in any way that could affect your loan eligibility or terms.

Why Lenders Check Credit Before Closing

There are a few key reasons lenders rerun credit reports just prior to closing

• To confirm you still qualify for the mortgage. Your lender wants to ensure your credit score and debt-to-income ratio still meet their approval criteria. If your credit score has decreased or your debts increased, it could impact your loan eligibility.

• To verify your debt-to-income ratio. Lenders recalculate your DTI to confirm you haven’t taken on any new debts that push your ratio over their limit. A higher DTI could mean you no longer qualify.

• To double-check your credit score. Your credit score can impact the loan terms, so lenders rerun credit to ensure you still qualify for the interest rate and other terms locked in at preapproval.

• To look for new red flags Lenders want to identify any new risks not present at preapproval that could jeopardize your ability to repay the loan. New inquiries, late payments, or high balances could raise concerns

• To comply with underwriting standards. Most lenders have policies requiring credit checks within a certain timeframe before closing to adhere to prudent underwriting practices.

Essentially, the final credit check gives lenders an up-to-date financial snapshot to minimize risk before they fund your mortgage.

When Lenders Check Credit Before Closing

Many lenders verify borrowers’ credit in the week or two leading up to the closing date. However, some lenders recheck credit closer to the date of closing – sometimes just a day or two before funding the loan.

Lenders have leeway on when they rerun credit reports as long as it falls within a reasonable timeframe before closing. Typical industry standards require lenders to verify credit no more than 14 days before closing.

Run credit too soon, and borrowers still have time to damage their credit before closing. Run it too late, and there’s risk of funding a loan without an accurate picture of the borrower’s current financial status. That’s why most lenders find it prudent to rerun credit 7-14 days pre-closing.

How Credit Changes Can Affect Closing

Your lender wants your credit profile to look the same at closing as it did when you were first approved. But sometimes credit changes occur during the home buying process that threaten the closing. Here are some examples:

• Your credit score decreases below your lender’s requirement. This could lead to your loan getting denied.

• Your debt-to-income ratio increases above the lender’s limit due to new debts. You may no longer qualify for the loan amount.

• A lower credit score prompts your lender to charge a higher interest rate to offset risk.

• A new delinquency or high balance raises red flags about your ability to pay the mortgage.

• An unauthorized credit inquiry suggests you applied for new credit, which lenders may want to verify won’t increase your debts.

Even small credit report changes could require some explanation or documentation from you during underwriting. Significant credit changes often mean delaying closing to sort out the issues. In worst-case scenarios, your loan gets denied altogether.

How to Keep Your Credit Intact Before Closing

Because credit slip-ups just before closing can jeopardize your home purchase, it’s critical to keep your credit stable in the months and weeks leading up to your closing date. Here are some tips:

• Don’t apply for new credit of any kind so you don’t risk hurting your credit score.

• Avoid large purchases that substantially increase your credit card balances.

• Pay all bills on time. Set up autopay if needed to avoid missed payments.

• Limit credit card use to reduce your credit utilization ratio.

• Continue paying down debts to keep your DTI at preapproval levels.

• Notify your lender of any changes to your employment status or income.

• Check your credit report for errors that could undeservedly tank your credit score.

• Consider credit monitoring to receive alerts about any score changes.

Following these dos and don’ts will help ward off any unwelcome credit surprises as you near the home stretch. Then you can breathe easy knowing your credit check before closing will only confirm your financing is good to go.

What If Your Credit Changes Before Closing?

If your credit does change prior to closing in a way that jeopardizes your approval, don’t panic. Here are some potential options:

• Your lender may be willing to rework your debt-to-income ratio calculations or require you to pay down existing debts.

• Providing documentation to explain new credit inquiries or delinquencies can sometimes calm lenders’ concerns.

• You may qualify for your lender’s reconsideration process to plead your case if your loan gets denied.

• Your lender may adjust your loan terms, like requiring mortgage insurance or charging a higher rate.

• As a last resort, mortgage credit repair services can help try to quickly improve your credit score.

• Delaying closing for a short time can give you some room to try improving your credit.

While fixing credit issues in the 11th hour is difficult, it’s not necessarily impossible. Be proactive and keep your lender looped in to explore every possible option before losing your dream home.

Partner with a Trusted Lender

Using a reputable lender helps ensure they rerun your credit at the appropriate time before closing and give you opportunities to address any credit changes. Be sure to clarify your lender’s timeline and requirements for the final credit check during the mortgage process.

It’s also wise to check your own credit regularly in the months before closing to avoid any unpleasant surprises. This way, you can tackle any credit issues early on your own terms rather than scrambling last minute before closing.

Staying on top of your credit is the surest way to sail through your final credit check before closing. Then you can get the keys to your new home without credit-related stress. Monitor your credit with Experian to catch any concerning changes early. Then you can close your home purchase with confidence.