Also, avoid any other inquiries with any lenders. This way you take away any risk of your credit score changing for the worse. If you cannot pay cash, then consider yourself unable to afford it at the moment. In order to prevent any issues with your credit, don’t make any changes before you close on your loan. If they provide you with the mortgage knowing there was a chance you had new debt out there, they could end up stuck with the loan on their own portfolio because no one on the secondary market will purchase it any longer.
Because it sometimes takes a little while for new credit to show up on a report, the lender has to proceed with caution. They may also need extra time to determine if you had any new credit extended to you. The lender may require a written explanation for these inquiries. Even if you don’t have any new credit lines reporting, the inquiries may hurt you. Inquiries are other lenders who pulled your credit in the interest of either increasing your existing credit lines or extending new credit. One last thing lenders look for when they pull credit prior to the closing is how many inquiries you have on your report.
Mortgage Lenders Look for Inquiries When They Pull Credit
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Once you close on your mortgage, you are free to do what you want with your credit, but until then, keep things as consistent as possible. Make sure you make your payments on time, don’t increase any of your outstanding credit, and don’t close any accounts. It is in your best interest to keep your credit as consistent as possible during this time. If your credit score dropped to a lower category because you had a late payment during the time you waited to close on your home or you closed an account without realizing the implications, it could affect your interest rate. For every credit score category, the lender must adjust the interest rate. It’s called a loan-level pricing adjustment. Your credit score determines the interest rate you receive. If there is a significant disparity between your original credit score and the score they receive prior to closing, the lender may have to readjust. It Could Change your Interest RateĮven if you did not overextend your credit between the time you applied for the loan and the closing date, you may still be affected when the lender pulls your credit. This is what lenders try to minimize by pulling your credit again at the last minute. This could put you at great risk for letting the home go into foreclosure. Because you just purchased it, your equity might not be very high, depending on how much money you put down. After a few months of balancing the new mortgage payment along with your other monthly debts, you might find it too difficult to own a home. What looks okay on paper might be more difficult to afford than you originally thought. You might get in over your head, so to speak. If you were to increase your debt load, it depletes your monthly resources. Lenders are held responsible with the new regulations, such as the Dodd-Frank Act and the Ability-to-Repay Rule.Ĭlick to See the Latest Mortgage Rates» Lenders Want to Minimize DefaultĪside from the Big Brothers watching the lenders, no bank wants to put themselves at risk for default. If they don’t, they could be on the hook with the overseeing agency, such as Fannie Mae or Freddie Mac. If your ratio is beyond the recommended guidelines for the loan program, the lender has to pull their approval. What if you racked up your credit card bills when you purchased furniture for the home? What if your car broke down and was unfixable and you had to purchase a new car? These things might not make you unable to afford the mortgage, but they definitely affect your debt ratio.
That is a long time to let your credit go unchecked. If it is a purchase, you could be looking at as long as six months before you close. There is often a long lapse of time between when you apply for a mortgage and when you actually close. Now, not only do they recommend that you don’t open a new credit card, buy a new car, or rack up your current credit card balances before you close, they check to make sure you don’t! Many lenders either pull credit a few days preceding the closing or even on that day, depending on when they provide the “clear to close.” This means they could pull their approval at the last minute if you changed anything regarding your finances. Lenders have gotten smarter with their ways, especially after the housing crisis. You received your mortgage approval, you figure everything is good to go and you are free to do with your finances as you wish, right? Unfortunately, this can hurt you in the end.