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 may feel like the hard part is behind you, but your lender may continue verifying important financial information right up to closing. Your loan approval was based on a particular picture of your income, debts, assets, employment, and credit. Until the keys are officially yours, the safest approach is to keep that picture as steady as possible—and check with your lender before making a significant financial change.

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. Lenders may check for new credit activity and additional debts before your loan is finalized. If new obligations materially change the numbers used to qualify you, your 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 a traditional credit card. Financing furniture, appliances, a vehicle, or another purchase may create a new debt obligation that needs to be considered by your lender. Even if the monthly payment seems manageable to you, let the lender determine whether it affects your qualification.
• 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. Large purchases can increase balances and required monthly payments, which may affect your debt-to-income ratio or other aspects of your credit profile.
• Closing or making unnecessary changes to existing accounts:
  There is usually little reason to reorganize your credit immediately before closing. Changes to existing accounts can affect your credit profile in ways that aren’t always obvious. If you believe an account should be closed or changed, ask your lender before doing it.
• 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. The question is when and how. A dispute or resulting change to your credit information during underwriting may require additional review. Contact your lender before beginning the process so you can address the problem without unnecessarily complicating your closing.

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. That doesn’t mean changing jobs automatically prevents you from getting the loan. It does mean you shouldn’t assume the change won’t matter.

A new employer, different compensation structure, reduction in hours, switch from salary to commission, move to self-employment, leave of absence, or other significant income change may require additional documentation or underwriting review. Some changes may have little effect; others can materially affect qualification.

If an employment change is optional, waiting until after closing may keep things simpler. If the change is necessary or has already happened, tell your lender promptly. Don’t try to decide for yourself whether it’s important enough to mention.

BE CAREFUL WITH LARGE OR UNUSUAL BANKING ACTIVITY
Your lender may need to verify the funds you’re using for your down payment, closing costs, and any required reserves. A large deposit isn’t automatically a problem, and transferring your own money isn’t prohibited. But certain deposits, transfers, or other activity may need to be documented so the lender can verify where the money came from.

Likewise, avoid spending or moving money needed for closing without checking first. If you need to transfer funds between accounts, receive a gift, sell an asset, make a large deposit, or complete another significant transaction, ask your lender what documentation you’ll need and keep the paper trail.

It’s also wise to avoid overdrafts and other activity that could create questions about the funds available for closing. The goal isn’t to make your bank account look artificially quiet. It’s to make sure the lender can clearly document the money being used to complete the purchase.

DON’T MAKE MAJOR FINANCIAL CHANGES WITHOUT CALLING YOUR LENDER
This is really the rule behind all the others. Your lender doesn’t expect your life to stop while you’re buying a home. But if something changes that could affect the information used to approve your mortgage, it’s much better for the lender to know about it early than discover it during a final verification.

A change in income, new debt, a large financial transaction, a different source for your closing funds, or another significant financial change may—or may not—affect your loan. You don’t have to figure that out yourself. Call your lender and let the person handling your mortgage tell you what matters and what documentation may be needed.

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 that your mortgage approval isn’t quite the finish line. Until the loan closes, try to keep the financial picture your lender approved as steady as possible. And if something important needs to change, make one call before you make the change.

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.