“Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board is made up of financial experts whose job it is to make sure that all of our content is fair and unbiased.
Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy. Bankrate logo.
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve kept this reputation for more than 40 years by making it easier for people to make financial decisions and giving them confidence in what to do next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the things that people care about most: the newest rates, the best lenders, how to buy a home, refinancing your mortgage, and more. This way, you can feel confident in the choices you make as a buyer and as a homeowner. Bankrate logo.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
Buyers may feel both excited and stressed when they close on a house. It’s normal to worry about whether or not everything will go well as the big day gets closer. People who are buying a house often wonder what mortgage lenders look at in the last few weeks before the closing.
I’m going to give you a full rundown of all the things lenders look at before closing so you know what to expect during the underwriting process. Find out what lenders look at most closely, why they look at these things, and how to make sure your loan gets approved below.
Income and Employment
One of the first things lenders look at is the borrower’s income and employment status. They want to make sure you can make the monthly mortgage payment.
Here are some key ways lenders verify income
-
Requesting pay stubs – Expect lenders to ask for your most recent pay stub They check your year-to-date earnings to calculate your average monthly income
-
Verifying employment – Lenders speak directly with your employer to confirm you are still actively working there. They verify your position, salary, and how long you’ve worked there.
-
Checking additional income sources – If you have other income like child support, disability payments, or rental income, lenders ensure these additional funds are likely to continue.
-
Reviewing tax returns – Lenders may request W-2s and your most recent tax returns to confirm your income history.
It’s important not to change jobs or salaries before the closing because it could cause problems and cause the approval process to take longer.
Assets and Reserves
Lenders also verify you have enough money to cover the down payment, closing costs, and required cash reserves. Here’s what they review:
-
Down payment funds – You must show the down payment money sitting in your account via a recent bank statement. Lenders want to see you have the funds ready, and that the amount matches what you initially stated.
-
Closing cost funds – Closing costs may range from 2-5% of the total loan amount. Lenders check you have these funds available.
-
Cash reserves – Many lenders require reserves equal to 2-6 months of mortgage payments. They review your bank accounts to see your present cash assets.
-
Large deposits – If you have any recent large or irregular deposits, expect lenders to ask for evidence showing where the money came from.
Credit Report and Score
Lenders always check your credit right before closing. They pull your credit report and review your scores from all three bureaus – Experian, Equifax, and TransUnion.
There are a few key things lenders look for:
-
Minimum credit score – Most lenders require at least a 620 FICO score to qualify for a mortgage. Your scores must be at or above the lender’s minimum.
-
Late payments – Having no late payments in the last 12 months improves your odds of approval. Recent late payments could indicate you may struggle to pay the mortgage.
-
Inquiries – Too many new credit inquiries can negatively impact your score. Limit applications for new credit before closing.
-
Balances – Lenders look at your credit utilization ratio (balances divided by limits). Keep balances low on revolving accounts.
-
New accounts – Opening a lot of new accounts right before closing can seem risky and delay approval.
Debt-to-Income Ratio
Lenders calculate your debt-to-income ratio (DTI) to check if your total monthly debt is affordable. They look at:
-
Total monthly debt payments – Your minimum payments on all installment loans, credit cards, child support, etc.
-
Proposed mortgage payment – Principal, interest, taxes, and insurance (PITI).
-
Gross monthly income – Your pre-tax monthly income.
Your front-end DTI uses just the proposed mortgage payment, while your back-end DTI includes all monthly debt payments. Many lenders want your DTI to be below 50%. A lower DTI percentage can improve your odds of approval.
Home Appraisal
Lenders order a home appraisal to confirm the property is worth at least the purchase price. If the appraisal value comes in much lower, this could put your approval at risk unless you renegotiate the price.
Key points on the appraisal:
-
Home condition – Appraisers note any necessary repairs. Major issues could lead to appraisal problems.
-
Comparable sales – Appraisers research similar homes recently sold nearby. Your home must appraise close to those comparable sales prices.
-
Appraisal vs. purchase price – If the appraisal value is lower than what you offered, be prepared to discuss options with your lender and negotiate with the sellers.
Documentation and Red Flags
In the final weeks before closing, lenders also review all documentation you submitted – bank statements, tax returns, etc. – with a fine tooth comb. They check for any inconsistencies or red flags.
Watch out for these documentation issues:
-
Income documentation doesn’t match – For instance, your bank statements show less deposits than claimed income.
-
Information is inconsistent – Different salary numbers reported on your application vs pay stubs.
-
Funds aren’t properly sourced – Large deposits without evidence showing where the money came from.
-
Appraisal problems – Home doesn’t appraise for the purchase price.
Take time to ensure all your documentation is accurate and consistent across the board. Thoroughly gather and review your documents before sending them to underwriting. This helps avoid problems or surprises.
Tips for a Smooth Mortgage Approval
Here are some key tips to help your loan sail through underwriting:
- Maintain employment and income until after closing.
- Keep credit card balances low and avoid new accounts.
- Save closing cost and reserve funds in your bank account.
- Don’t make any big purchases like a car before closing.
- Review all documentation carefully before sending to lender.
- Be prepared to explain large deposits or credit inquiries.
- Get any home repairs completed quickly after inspection.
- Be ready to negotiate if home appraises low.
Following these best practices will help ensure you don’t hit any roadblocks on the path to closing.
Now that you know what lenders check before closing, you can feel confident and prepared as your loan heads into the home stretch of the underwriting process. Just continue paying your bills on time, limiting debts, and saving your funds. With a little diligence in the final weeks, you’ll soon be holding the keys to your new home!
6 common mistakes that prevent closing on a mortgage
People who are about to close on a house may have told you to watch your spending and not buy anything too expensive. But what does a lender see as a big purchase during the underwriting process? A new car or boat would most likely raise red flags with lenders. Even furniture or appliances — basically anything you might pay for in installments — is best to delay until after you finalize your mortgage.
Depending on your credit score and history, these transactions can lower your score, which can impact the interest rate and loan amount you receive. This could result in a higher interest rate for the next 15 or 30 years, or even having to come up with a larger down payment.
Bottom line: Wait to purchase a big-ticket item, because “this can ruin their chances of staying qualified for a loan,” says Patricia Martinez-Alvidrez, senior escrow officer at Clear Title in El Paso, Texas. Lightbulb Icon How soon after closing can I buy furniture?.
Once you’ve gone through all the closing day formalities, feel free to pick up that sofa or dining room set you’ve had your eye on.
Taking out a personal loan
Things could go wrong before the closing day if you get a personal loan or co-sign someone else’s loan. In some cases, the lender might turn you down for a loan altogether, even if you were previously preapproved.
It all depends on how your credit score and debt-to-income (DTI) ratio is impacted. A good DTI, in particular, is a critical factor in mortgage approvals. Lenders consider two types of DTIs:
- For the front-end DTI, you divide your monthly income by your monthly mortgage payment, which includes principal, interest, taxes, insurance, and association fees.
- When you divide all of your monthly debt payments by your monthly income, you get your back-end DTI.
Depending on the amount of the loan payment, your back-end DTI could increase to a percentage that the lender is unwilling to accept. If your credit score is right above the minimum to qualify for a mortgage, a hard inquiry from applying for a personal loan could drop it enough to make you ineligible. Either way, there’s a chance you’ll be forced to walk away from the deal.
What do lenders check before closing?
FAQ
What do lenders check right before closing?
Some things a lender checks before closing include your credit score, income and debts. Lenders are primarily looking to ensure nothing has changed since you initially applied for the mortgage.
Do lenders check your bank account before closing?
Yes, lenders usually look at your bank statements before closing on a mortgage to make sure you have enough money to pay the closing costs and the mortgage.
What happens 3 days before closing?
It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). There must be at least three business days between the lender giving you the Closing Disclosure and the closing event.
Can a loan be denied right before closing?
Sadly, yes, that can happen. There is often a caveat in the closing docs that if anything has changed to materially impact the risk of the loan between approval or closing, the lender reserves the right to cancel.