Lenders require documentation for pretty much every detail of your life before granting you a loan. Of course, included in this process is a credit check.
A common question buyers have is whether or not a lender pulls your credit more than once during the purchasing process. Well, the answer is yes. Lenders pull borrowers’ credit in the beginning of the approval process and then again just prior to closing.
Initial Credit Check
Once your ready to get pre-approved for a loan, lenders will verify your financial information. During this phase, lenders require documentation to confirm the information in your application and pull your credit history for the first time.
You may even be required to submit a letter of explanation for each credit inquiry over recent years, like opening a new card or information regarding a missed payment in the past.
Once you find a home and make an offer, underwriters then analyze the risk of offering you a loan based on the information in your application, which includes credit history and property value.
Second Credit Check at Closing
During the period from the initial credit check to closing, new credit incidents may occur on your history due to how long it could take for your offer to be accepted and for your loan to pass underwriting. Therefore, many lenders pull borrowers’ credit a second time just before closing to verify your credit score remains the same and to make sure the risk to the lender hasn’t changed.
Being late on a payment can affect your loan. Or, if you acquire any new loans or lines of credit and used them during that time, your debt-to-income ratio would change, which can also affect your loan eligibility.
If the second credit check results match the first one, closing should occur smoothly and on schedule. If the new report is lower or concerning to the lender, you could possibly lose the loan. Alternatively, the lender may send your application back through underwriting for a second review.
This is why its important for buyers to be aware that most lenders run a final credit check before closing, so that the home-buying window is a time to cautiously keep in mind your credit.