It's common for mortgage lenders to carry out a final credit check before they're ready to make you a binding offer, which can sometimes make people nervous. In this article, we'll explain what final credit checks entail, how to boost your chances of passing one and what to do if your mortgage has been declined.
If you have significant changes in your credit, income, or funds needed for closing, you may be denied the loan.
Because the home purchase process takes time, mortgage lenders will reassess a few key criteria before officially closing on a loan. Some things a lender checks before closing include your credit score, income and debts.
Yes. A mortgage lender will look at any depository accounts on your bank statements — including checking and savings accounts, as well as any open lines of credit.
Prior to closing
Many lenders will repeat income and employment verifications before closing to confirm nothing has changed. This helps the lender reduce risk of a loan buyback. Borrowers should note: experts generally recommend that they not change jobs during the mortgage loan process if they can help it.
When the Know Before You Owe mortgage disclosure rule becomes effective, lenders must give you new, easier-to-use disclosures about your loan three business days before closing. This gives you time to review the terms of the deal before you get to the closing table.
Your lender will need an insurance binder from your insurance company 10 days before closing. Check in with your lender to determine if they need any additional information from you. Get a change of address package from the U.S. Postal Service and begin the change of address notification process.
When trying to determine whether you have the means to pay off the loan, the underwriter will review your employment, income, debt and assets. They'll look at your savings, checking, 401k and IRA accounts, tax returns and other records of income, as well as your debt-to-income ratio.
Though it's rare (73% of contracts close on time, and only 5% of contracts never make it past closing day), there are also other reasons that a home's sale can fall through on the closing day, including cold feet, title issues, and unfulfilled contingencies.
When you lock your interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called "repricing" your loan.
Lenders run your credit just before your house closes to ensure your financial situation hasn't changed and you still meet the eligibility requirements for the loan. If your credit score decreases before closing, you can risk mortgage approval.
The contract may also specify you have a limited number of days to secure financing and failure to do so by the deadline if your loan is denied earnest money deposit may be lost.
Completion usually happens 7 to 28 days after exchange, the amount of time completion takes will usually be agreed by the buyer and seller.
Timing Requirements – The “3/7/3 Rule”
The initial Truth in Lending Statement must be delivered to the consumer within 3 business days of the receipt of the loan application by the lender. The TILA statement is presumed to be delivered to the consumer 3 business days after it is mailed.
Before the final closing, lenders undertake a title search to confirm there are no outstanding liens or legal complications associated with the property. This rigorous process helps ensure a clear title transfer.
However, some mortgage lenders promise speedy closing timelines, as fast as seven to 10 days in some cases. The fastest closing timelines are typically when the buyer pays cash and can skip the appraisal process. Your best bet? Budget for a 45-day closing process, from accepted offer to closing day.
Lenders typically do last-minute checks of their borrowers' financial information in the week before the loan closing date, including pulling a credit report and reverifying employment.
The TRID rule provides that the borrower can waive the seven-business-day waiting period after receiving the LE and the three-day waiting period after receiving the CD if the borrower has a “bona fide personal financial emergency,” which requires closing the transaction before the end of these waiting periods.
Some buyers may be able to negotiate an immediate possession date. This means as soon as the transaction is closed and the deed is recorded, the buyer can move in. A few other common buyer possession dates may be 15 days, 30 days, 60 days, or even 90 days after closing, depending on how much time the seller needs.
Clear-to-close buyers aren't usually denied after their loan is approved and they've signed the Closing Disclosure. But there are circumstances when a lender may decline an applicant at this stage. These rejections are usually caused by drastic changes to your financial situation.
The California Purchase Contract is chock-full of deadlines: three days to place a deposit into escrow; 17 days to perform investigations; scheduling utilities, organizing closing, and many other important details.
At closing, the title company or attorney handling the transaction will use the buyer's funds to pay off your mortgage directly to your lender. Any remaining proceeds (minus selling costs) are then disbursed to you.