Most home buyers know that a mortgage
lender pulls there credit report at the beginning of the home buying process,
but did you know that the mortgage lender pulls it again right before
closing? They do – it’s called a ‘soft
credit check’ - and the results of it can cause you to lose your mortgage
approval just days before buying your home.
The Soft Credit Check
A soft credit check is a credit pull
that your mortgage lender will typically do in the last couple of days before
the closing on your home purchase. This
type of credit pull does not impact your credit score, but it does show the mortgage
lender if anything has changed on your credit report since you initially
applied.
Mortgage lenders are looking for things that
might make them change their mind about financing you. These things could be items that make the
credit score lower or items that make the debt higher. Either situation could cause the mortgage to
be declined at the very last minute, causing a great deal of stress and
heartache for the home buyer, seller and Realtors.
Top Soft Credit Check Problems
So what kind of things could cause
you to lose your mortgage approval at the last minute? Here are the most common ones:
· Higher
monthly bills – some time people make multiple
purchases around the time that they get their mortgage. They buy new furniture, a new vehicle or some
other financed item. This could make
your debt compared to income too high and you could become ineligible for the
mortgage because of it. Even co-signing
for someone else’s loan during this period can cause you to be declined.
· Higher credit
card balances – Even if you don’t take out new
debt during the mortgage process, racking up the balances on your existing credit
cards can cause your credit score to drop to a point where you lose your
mortgage approval.
· Late
payments – a lot is going on when buying a home
and it’s easy to let something slip. Even
one small late payment can cause your score to drop significantly, though,
causing your mortgage to be declined. If
you have loans on your credit report that are technically someone else’s but
that you co-signed for, their late payment can have the same effect on your credit
score.
· Hard
Inquiries – soft inquiries like this one done
by your mortgage lender don’t impact your credit score but hard inquiries
do. Hard inquiries are credit pulls done
by companies when you apply for new debt.
These inquiries indicate that you might be stretching yourself
financially, and your credit score could drop because of this, causing your
mortgage to be declined.
So what should you do to avoid
losing your mortgage approval at the last minute? The best course of action is to do NOTHING
related to your credit during the mortgage approval process. Don’t apply for any new debt. Don’t increase the balances on your credit
cards. Don’t co-sign for anyone. Don’t fall behind on any payments. Basically, just keep your credit as it was
when you applied for your mortgage originally.
Doing this will help you avoid the risk of losing your mortgage approval
right before the closing on your new home.
