The Last Minute Credit Check
Did You Know?
Your mortgage lender may run a second credit report just prior to
closing. Red flags that appear in this credit report can disqualify
you for the mortgage loan.
Your actions after
receiving lender approval for a mortgage loan can disqualify you for the
loan. A mortgage loan is conditionally approved, with the lender reserving
the right to re-verify credit, income, assets and employment at any time. The
lender may cancel the loan if there are any adverse changes to your
Your debt-to-income ratio is your gross monthly income divided by the amount you spend on debt.
Debt items include mortgage payments (including principal, interest,
insurance, tax), car payments, credit card payments, student loans, child
support payments, etc.
The lender considers debt-to-income ratio when approving you for a mortgage loan. Only 28 percent
of your income can be used for your mortgage payment, which includes taxes
and insurance; and 36 percent for the mortgage payment plus the rest of your
debt. Anything you do to negatively affect your debt-to-income ratio may
change an "approval" to a "disqualification."
Avoid Red Flags
A red flag is any
inquiry made regarding your credit worthiness. If you decide to purchase a
big ticket item - like a car, boat or furniture - prior to closing, you're
at risk of having a red flag show up on your credit report.
Keep Your Money
Where It Is
The balances of your
liquid assets are considered when approving you for a mortgage loan. These
liquid assets may include checking accounts, savings accounts, certificates
of deposit, money market accounts, retirement accounts, stock and mutual
Avoid changes to the
balances of these accounts. Do not close accounts. Do not change banks. A
large withdrawal or deposit to any of these accounts will trigger a red flag
for your mortgage lender. If a red flag is triggered, you may be asked to
produce a paper trail tracking large withdrawals and/or deposits.
For most employees a
change of jobs to one of equal or higher pay will not trigger a red flag.
However, sales people should not change jobs prior to closing on
their mortgage loan.
If your income
is strictly salary than you should not have a problem changing to another
job of equal or greater income. If, however, your income includes salary
and bonuses, commissions and/or overtime, you should not change jobs
prior to closing.
If your income
is based solely on a 40-hour work week without overtime, than changing to a
job with equal or greater hourly pay should not be a problem. However, if
your income is dependent upon overtime pay, do not change jobs prior to
If your income
is from commission or a substantial portion of your income is from
commission, then you should not change jobs prior to closing. Typically,
mortgage lenders average your commissions over the last two year period to
determine income. Changing employers eliminates the two-year commission
history and places uncertainty on your income status.
Talk to Your Loan Originator
Do not make any
changes to your financial and employment status without first talking to
your loan originator.