Reader question: “At what point during the home-buying process do FHA mortgage lenders check my credit score? I’m guessing they do it at the start of the process, when I first apply for a loan. But do they run a second credit check before closing?”
Here’s the short answer: Most lenders who offer FHA loans will check your credit score at least twice. They do an initial pull shortly after you apply for financing, and they often do a second pull just before the scheduled closing day. This is why it’s best to keep your financial situation “static” between the initial application and the final closing. Any major changes could potentially derail your loan.
When (and How) FHA Lenders Check Your Credit
Different lenders have different application procedures. So the process can vary slightly from one mortgage company to the next.
With that being said, most FHA lenders check your credit score as early in the application process as possible. This benefits everyone, including you. They want to know if you’re a good candidate for a home loan early on, because it’s a time saver. It prevents everyone from spending a lot of time and doing a lot of paperwork on a loan that’s just not going to fly. So they typically check borrower credit scores at the time of application, for this very reason.
In addition to your credit situation, the lender will also check your income level, the various debts you carry, your employment situation, and other factors relating to your ability to repay the loan.
The Application Process at a Glance
To put this into a broader perspective, I’ll outline the basic steps that take place when you apply for an FHA home loan:
- You would start the process by submitting an initial application through the lender’s website, or by visiting their office in person.
- The lender will review your income, your current level of debt, and a few other preliminary factors.
- Either at this stage, or shortly after it, they will also check your credit score to see how you have managed your finances in the past (particularly where loans are concerned).
- If you measure up well in all of these areas, the lender will probably give you some form of pre-approval letter. Basically, they are telling you how much money they are willing to lend you based on your qualifications as a borrower.
- If your credit score is too low, or you are carrying too much debt relative to your income, the lender might reject your application at this point. Likewise, they could turn you down if you’re simply asking for too much money based on your income.
This process varies slightly from one lender to the next. It also varies based on whether you start the process online or in person. But this is usually how it works.
The bottom line: The mortgage company will check your credit score early in the FHA lending process, in order to save everyone time and paperwork. But they might check it a second time as well, a few days before you close. So let’s talk about that next.
A Second Credit Check Before Closing
In addition to the first credit score review (which typically happens when the application is submitted), some FHA lenders perform a second credit check shortly before closing.
They do this for several reasons. Among other things, they want to know if the borrower has taken out any additional loans or lines of credit since the initial application was filed. These additional debt obligations could affect the borrower’s ability to qualify for financing, by increasing his or her debt-to-income (DTI) ratio.
The second FHA credit check also shows if the borrower’s score had dropped for some reason. For instance, if an applicant goes through a debt collection sometime after the initial application, it will likely show up on the person’s credit report before closing day. This is another issue that could raise red flags with the underwriter, and possibly derail the loan.
The bottom line: FHA lenders sometimes do a second credit check before closing. They do this to make sure the borrower is still as well-qualified as they were when the application was first submitted. They want to make sure nothing has changed from a financial standpoint — at least nothing significant. If something does change, one of three things could happen: (1) the loan will move forward without a hitch, (2) the deal will fall through, or (3) the file will go back to the underwriter for a secondary review.
Finding Out Where You Stand
You can check your own credit score before applying for an FHA loan, and it’s generally a good idea to do so. You want to know where you stand, in terms of borrowing criteria. At a minimum, you should know your current credit score and also your debt-to-income ratio, before you start talking to lenders.
It’s important to do this early on in the home-buying process. Here’s why: If you find out that your score is low, you will need time to improve it. With a bad credit score, you’ll have a much harder time qualifying for an FHA loan. And even if you do qualify with bad credit, you certainly won’t get the best interest rate. So find out where you stand now, before you move further into the process.
Disclaimer: This article answers the question, Do FHA lenders check my credit score again before closing day? Every lending scenario is different because every borrower is different. As a result, portions of this article may not apply to your situation. So don’t take any of this as gospel. This article was provided for educational purposes and does not constitute financial advice.