Can my mortgage be declined because my credit score dropped after going under contract?
Short Answer:
Maybe. Most mortgage lenders run a refersh of a credit report a few days before closing. Some lenders the report only shows any changes to the credit since the last pull, but does not include new scores. Others do a hard credit pull with new scores. If you are with a lender with the latter, there is a chance a lower credit score could effect your ability to qualify for a specfic mortgage.
Longer Answer:
When you're in the process of buying a home, securing a mortgage is a critical step. But what happens if your credit score drops after you've gone under contract? It's a question that many prospective homeowners worry about, and for good reason.
Understanding the Mortgage Approval Process
Once you've gone under contract for a home, your lender will begin the process of finalizing your mortgage. This involves a thorough review of your financial situation, including your credit report and credit score. For most mortgages, a credit report is good for 120 days from the date it is pulled. If your credit report from your pre-approval will be more than 120 days old by the date of your closing, the lender will have to run a new credit report with a new score. A drop in your respective score or more debt obligations could cause your pre-approval to no longer be valid.
The Role of Your Credit Score
Your credit score is a key factor in determining your mortgage eligibility and the terms of your loan. A higher credit score can lead to better interest rates and loan terms, while a lower score might result in higher costs or even denial of the loan.
What Happens if Your Credit Score Drops?
Lenders typically perform a final credit check before closing on the mortgage. If your credit score has dropped significantly, it could raise red flags. A lower score might indicate increased financial risk, leading the lender to reconsider your loan application. This could result in changes to your loan terms or, in some cases, a denial of the mortgage.
How to Protect Your Credit Score During the Mortgage Process?
To minimize the risk of your mortgage being declined due to a drop in your credit score, consider the following tips:
- Avoid New Debts: Refrain from taking on new loans or credit cards until your mortgage is finalized.
- Make Timely Payments: Continue to pay all your bills on time to maintain a positive payment history.
- Monitor Your Credit Utilization: Keep your credit card balances low relative to your credit limits.
- Stay Informed: Regularly check your credit report for any errors or unexpected changes.
Conclusion
While a drop in your credit score after going under contract can potentially lead to a mortgage denial, being proactive and maintaining your financial health can help you avoid this situation. By understanding the importance of your credit score and taking steps to protect it, you can increase your chances of a smooth and successful home-buying experience.
If you have other mortgage underwriting questions, please reach out at teamjd@mainstreethl.com
These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.
Find more answers to mortgage & real estate questions at www.jdanswersquestions.com
