Navigating the purchase of a home can be overwhelming for first-time buyers, with lenders requiring a wealth of documentation of before granting a loan. And, of course, they also will require a credit check. Here, Zillow explains how many times a lender is likely to pull your credit during the purchase process and why.
Initial check for pre-approval
In the first phase of acquiring a loan—pre-qualification—you’ll self-report financial information. Lenders want to know details such as your credit score, social security number, marital status, history of your residence, employment and income, account balances, debt payments and balances, confirmation of any foreclosures or bankruptcies in the past seven years and sourcing of a down payment. This is only a portion of the total information needed for your mortgage application. Once you’re ready to get pre-approved for a loan, lenders will verify your financial information. During this phase, lenders require documentation to confirm the information in your application and pull your credit history for the first time. You may be required to submit a letter of explanation for each credit inquiry in recent years, such as opening a new credit card, and for any derogatory information in your history, like a missed payment.
Once you find a home within your budget and make an offer, additional or updated documentation may be required. Underwriters then analyze the risk of offering you a loan based on the information in your application, credit history and the property’s value.
Second check at closing
It can take time for your offer to be accepted and for your loan to pass underwriting. During this period—from the initial credit check to closing—new credit incidents may occur on your history. Many lenders pull borrowers’ credit a second time just before closing to verify that their credit score remains the same, and therefore the risk to the lender hasn’t changed. Being late on a payment and being sent to collections can affect your loan. In addition, if you acquired any new loans or lines of credit and used those credit lines, your debt-to-income ratio would change, which also can affect your loan eligibility. If the second credit check results match the first, closing should occur on schedule. If the new report is lower or concerning to the lender, you could lose the loan. Alternatively, the lender may send your application back through underwriting for a second review.
