Make Sure to Avoid These Before Closing On a Home

You’re getting ready to close on a new property. Congratulations! At this point, it’s tempting to think the important financial decisions are behind you. But your lender approved the mortgage based on a particular picture of your income, debts, assets, employment, and credit—and some of those things may be verified again before closing. That gives us a fairly simple rule for the final stretch: until the keys are officially yours, try not to change the financial picture your lender used to approve you without checking with the lender first.

AVOID UNNECESSARY CHANGES TO YOUR CREDIT
One of the easiest ways to complicate a mortgage approval is to change your credit or debt picture shortly before closing. The issue isn’t that using credit suddenly becomes prohibited. It’s that new credit activity or additional debt may change the numbers your lender already evaluated. If it does, the loan may need to be reevaluated.

Until you’ve closed, be especially careful about the following:

• Opening a new credit account:
  This includes more than applying for another credit card. Financing furniture, appliances, a vehicle, or another purchase may create a new monthly obligation. The important question isn’t whether the payment seems affordable to you. It’s whether that additional obligation changes the calculations your lender used to qualify you. Let the lender answer that question.
• Running up existing balances:
  That new sofa may look perfect in the living room you haven’t moved into yet, but this is probably not the time to finance it. A larger balance can affect required monthly payments, your debt-to-income ratio, or other aspects of your credit profile. The furniture will still be available after closing. Your mortgage approval is considerably more time-sensitive.
• Closing or making unnecessary changes to existing accounts:
  There is usually little advantage to reorganizing your credit immediately before closing. Even a change that seems financially responsible can affect your credit profile in a way you didn’t anticipate. If you think an account should be closed or changed, ask your lender first rather than assuming the change can only help.
• Starting a credit dispute or trying to make a last-minute correction:
  If information on your credit report is genuinely inaccurate, it should be addressed. But there are two separate questions: whether it should be corrected and whether the middle of mortgage underwriting is the right time and way to correct it. A dispute or resulting change may require additional review, so contact your lender before beginning the process.

DON’T CHANGE YOUR EMPLOYMENT WITHOUT TALKING TO YOUR LENDER
Employment and qualifying income are important parts of mortgage underwriting, and lenders may verify employment again shortly before closing. Changing jobs doesn’t automatically mean you’ll lose your financing. The more useful question is whether the change affects the income the lender relied upon when approving it.

A new employer, different compensation structure, reduction in hours, switch from salary to commission, move to self-employment, leave of absence, or another significant income change may require additional documentation or underwriting review. If the change is optional, waiting until after closing may keep things simpler. If it’s necessary or has already happened, tell your lender promptly. This is one of those situations where deciding for yourself that the change “shouldn’t matter” can create a problem the lender might otherwise have had time to address.

BE CAREFUL WITH LARGE OR UNUSUAL BANKING ACTIVITY
Your lender may need to verify the money being used for your down payment, closing costs, and required reserves. A large deposit isn’t automatically a problem, and moving your own money between accounts isn’t automatically a problem either. The issue is whether the lender can document where the money came from and confirm that the funds meet the loan requirements.

If you need to transfer money, receive a gift, sell an asset, make a large deposit, or complete another significant transaction, ask your lender what documentation you’ll need and preserve the paper trail. Likewise, avoid spending money needed for closing or creating overdrafts. The objective isn’t to make your bank accounts look artificially inactive. It’s to make the source and availability of your closing funds easy to verify.

DON’T MAKE MAJOR FINANCIAL CHANGES WITHOUT CALLING YOUR LENDER
This is really the principle behind everything else. Your lender doesn’t expect your life to stop while you’re buying a home. The distinction is between ordinary financial activity and a change that could affect the information used to approve your mortgage.

A change in income, new debt, a large financial transaction, a different source for your closing funds, or another significant change may matter—or it may not. You don’t need to become your own mortgage underwriter to figure out which one it is. One call to the lender before making the change is considerably easier than explaining an unexpected change during final verification.

KEEP YOUR CLOSING FUNDS READY
As closing approaches, keep the money you’ll need for the transaction accessible and pay close attention to the final numbers. You’ll generally receive a Closing Disclosure before closing that shows important loan terms and the amount expected from you at settlement. Review it carefully and ask questions about anything you don’t understand.

Also be extremely cautious with wiring instructions. Real estate wire fraud is a serious risk. Never rely solely on wiring instructions received unexpectedly by email or text. Before sending money, independently verify the instructions using a trusted phone number for the title, escrow, closing, or settlement company—not a phone number supplied in a suspicious message.

UNTIL YOU HAVE THE KEYS…
You don’t need to spend the final days before closing worrying that every trip to the grocery store is going to derail your mortgage. Live your life. Pay your bills on time. Keep doing what you’ve been doing.

Just remember what your lender actually approved: a particular financial picture at a particular point in time. Until the loan closes, try to keep that picture reasonably steady. And if something important needs to change, let the lender determine whether it matters before you make the change whenever possible.

If you have questions about your loan or upcoming closing, don’t hesitate to reach out to me. I may not be the person underwriting your mortgage, but I can help you get connected with the lender or closing professional who has the answer.

We’re almost there. Let’s make the last few steps as uneventful as possible.