Once you hear the words ‘clear to close’ from your loan officer, you probably breathe a sigh of relief. While it’s a great feeling, don’t get too relaxed just yet. The lender isn’t done verifying your qualifying factors yet. What the ‘clear to close’ means is that the lender approves your qualifying factors thus far. Before they will let you sit at the closing table and start signing documents, though, they will do a few more quick verifications to make sure that nothing has changed.
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Your Credit Score
You feel like you won the lottery because the lender approved your loan with your current credit score. Now it’s time to go out and buy new furniture and appliances on credit, right? Don’t do it. Lenders do more than one credit check on your loan. They need to make sure nothing changed between the time you applied for the loan and the loan closing.
Here’s an example. Let’s say you received a pre-approval from a lender on October 1st. It took you 45 days to find a home, so you didn’t come back and complete the underwriting process until mid-November. The underwriting process took a few weeks, so it’s now December and you are closing on your loan. That’s a long time for you to take out new loans or mess up your credit score in some other way. Lenders will likely pull your credit report one more time right before they draw up your closing documents to make sure this isn’t the case.
We recommend that you ‘freeze’ your credit after applying for pre-approval. Don’t open any new loans, don’t make your payments late, and don’t rack up your credit cards. Just let things stay as they are until you sign on the dotted line. Once you have those house keys in your hand, then you are free to do what you want with your credit.
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Again, because so much time likely passes between the pre-approval and final closing documents, lenders need to make sure you still have the same job. They do this because they based your loan approval on your income at the time. If you changed jobs, chances are that your income changed too. This could change the entire landscape of your loan.
Right before the lender creates the closing documents, they will make a phone call to your employer. They will verify that you are still employed in the same position. They may ask for a most recent paystub to further backup their findings, but this may vary by lender.
We suggest that you stay at the same job until you sign those closing documents. Of course, life happens and sometimes you can’t control if you keep the same job, such as when a company closes. If this happens, you need to be honest with your lender. Don’t wait until the closing to let them be ‘surprised.’ You’ll be the one that ends up with the unpleasant surprise in the end – you won’t close on your home. If you can help it, stay with the same employer. If you can’t, you may have to wait a few months after obtaining a new job to close on your loan.
Some lenders also check up on your income, but not all do. Again, if you keep everything status quo, you won’t have anything to worry about. If the lender feels that your employment was iffy or your income was on the rocks, they may do one last verification to make themselves feel good about providing you the loan. They need to make sure that you can afford the loan beyond a reasonable doubt, which means making sure that you have stable income.
Lenders make these last minute verifications to make sure you aren’t a high default risk. Mortgage regulators require lenders to be sure beyond a reasonable doubt that you can afford the loan. This means making those last minute checks to ensure that nothing has changed since you first applied for the loan.
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