Here are some red flags underwriters are looking for when checking your bank statements. Bank statements also show the underwriters you did not open any credit accounts or take on new debt before getting your mortgage. Underwriters then analyze the risk of offering you the loan, based on information from your application, your credit history, and the property value.
Your credit score and the financial information in your credit report may dictate whether or not you are approved, as well as the terms of your loan. We are not creating new credit scores, nor is this going to appear on your credit report with a hard pull. Because your credit report is just a snapshot of your credit profile, it is clear that things could change, and there could be new credit events in your history. Lenders pull credit right before closing to make sure that you did not take on new credit card debt, auto loans, etc. Also, if there are new credit inquiries, we will have to check what new debt, if any, came out of that inquiry. Lenders pull the borrower's credit early in the approval process, then again right before closing.
The pulling is the reason why you should not take out any credit cards or other loans until after your mortgage has closed. Try to avoid applying for new credit lines around this time, because it will trigger a hard inquiry on your credit report and add to your total debt, regardless of whether or not you are using the credit lines. Regardless of whether or not use your credit line, be sure not to overspend during the lead-up to the closing -- particularly if you are using the money you have put away for the closing (and keep in mind, this can look this way on paper, regardless of whether or not you are drawing from your closing funds). Note that if a lender plans on checking your credit before closing, an extra check should be listed as a condition of closing, but unfortunately, this is not always the case. A credit check can be done at this time to make sure that no major changes are made before closing. We will have alsocompleted our final financial checks, such as checking income and running a full credit check, as well as assessed the value of the property you wish to purchase. When it comes to a final credit check, a lender is just acting in good faith, doing a final check of your finances before giving you the go-ahead.
In the lead-up to closing your mortgage, lenders are making assessments about the credit risks they are taking on, and go through multiple steps to weigh those risks against every applicant for the loan, said Rutger van Faassen, vice president of consumer lending for Informa Financial Intelligence, financial products, and services firm in Boston. An underwriter typically wants to see the money in your bank account is yours, and is not borrowed from anyone else (unless it is via a gift with the proper documentation of the down payment). Doing this can leave you at risk of mortgage rejection, or having to pay higher interest rates. The effect of the extra application is minor, and shopping around for a better deal could save you big in the end.