Buyers Beware: Last-Minute Credit Checks Are Real

Have you already done the hard work to secure a mortgage, find the right home, and negotiate a deal that works for all parties? Then the last thing that you want is for a last-minute hitch to throw a wrench in the process. One of the final hurdles to clear is the last-minute credit check that lenders do before closing, and it’s important to be prepared. Lenders want to protect themselves from default, and the last-minute credit check is one final test to make sure you’re ready to pay your mortgage. Our real estate agents are here to help you prepare for the final credit check, and move one step closer to owning your next home.

How to Prepare for Your Final Credit Check Before Closing

If you’ve scouted Columbia homes for sale, gotten pre-approved for a mortgage, and negotiated a deal for your target home, then you’re already close to the finish line. The last-minute credit check is one of your final milestones to clear, and taking the time to prepare is the key to passing this final test.

Why Do Lenders Require a Final Credit Check?

Since there can be a long gap between the time you get pre-approved for a mortgage and the time you close on a home, lenders want to make sure that your credit is still in good shape at closing. Your debt-to-income (DTI) ratio helps lenders decide whether you’re prepared to make mortgage payments, and lenders typically want to see a DTI of 43 percent or less. So the final credit check is a way to make sure you haven’t added significant debt – or had other credit issues – in the time between pre-approval and closing.

The final credit check is one more chance for lenders to avoid a mortgage with a high chance of default, and negative changes in credit can result in higher interest rates or even cause the lender to pull the offer. Fortunately, there’s no need to stress as long as you’re prepared for the process.

Simple Tips to Prepare for Your Final Credit Check before Closing

Since you’ve already gone through the process of pre-approval, passing the final credit check is really about avoiding the things that lenders don’t want to see. If your DTI is already hovering around that 43 percent mark, it’s especially important to make sure your credit will be ready to pass the final test.

• Avoid Big Purchases with Credit – Taking on more loans before closing is likely to raise red flags with lenders, especially if you’re financing a major purchase. So if you’re thinking of buying a vehicle, an appliance, or something else big, then your best bet will be to wait on making those purchases until after you’ve closed on the home.
• Don’t Open New Lines of Credit – No matter how appealing the initial terms, opening new lines of credit before closing could put your loan in jeopardy. Again, it’s simply best to wait until after you close.
• Inquiries Matter, Too – Even if you don’t open any new lines of credit, lenders may check to see if you’ve been inquiring about major financing for other purchases. These inquiries show up on your credit report and may cause the lender to think twice if you’re already close to the DTI limit.

Are you shopping for a home, and searching for a real estate team who will be there to help during every step in the process? Contact us to buy and sell homes throughout the Columbia, MO area.