Mortgage  Question?
Do Lenders Check Credit Again Before Mortgage Closes?

Do lenders check your credit again before your mortgage closes? We charged our credit card due an emergency and I am worried the lender could cancel our loan. We have paid off the debt but it still appears on our credit report.

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

Until you reach the "clear to close" phase of the mortgage process the lender may run your credit again to determine if you have opened any new debt accounts or increased your outstanding loan balances significantly. "Clear to close" means that all of the conditions to close of have been satisfied, the lender's underwriter has issued final approval and your mortgage is ready to close.

Most, but not all, lenders check your credit a second time with a "soft credit inquiry", typically within seven days of the expected closing date of your mortgage prior to the "clear to close" stage. A soft credit inquiry does not negatively impact your credit score and allows the lender to determine if there have been significant changes in your credit profile since you applied for the mortgage. If you incurred significant new debt or opened several new loan accounts, that can hurt your credit score or the debt-to-income ratio that lenders use to determine your ability to qualify for the mortgage. If you take on too much new debt, your credit score drops substantially or your monthly debt payments increase significantly compared to when you applied for the loan, the lender may determine that you no longer qualify for the mortgage according to their guidelines and cancel the loan. This outcome is highly unusual and I only offer this information as a worst case scenario.

Lenders are focused on borrowers whose credit profiles have changed significantly such as if you take out a new car loan, apply for multiple new loans or run up new credit card debt by making major purchases. Borrowers should not apply for new loans or incur significant new debt until after their loan closes. Lenders, however, are less focused on borrowers who incurred additional debt due to a personal emergency although they may want to better understand the circumstances of the emergency. Please note that If the lender intends to check your credit prior to closing, the additional credit check should be listed as a condition to close but unfortunately that is not always the case.

To address your specific situation, if you incurred additional credit card debt due to an emergency and you have since paid off that debt, it should not interfere with your ability to close your mortgage, even if the higher debt balance currently appears on your credit report. I recommend that you draft a letter that explains the emergency that led to the increased credit card debt and also notes that the debt has been paid off. The letter should be factual and to the point. You should also gather documentation that verifies that the debt has been paid off including proof of payment and the current credit card statement with the lower account balance. In the event that your lender performs a second credit check prior to closing and asks about the credit card account you can provide the letter as well as the supporting documents to quickly address the issue. If the lender does not perform the second credit check there is no need to raise the issue or provide the documentation.

I understand that you are nervous about your mortgage closing but with a little preparation you should be well positioned to close your loan whether the lender checks your credit again prior to closing or not.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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