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What not to do before you have your funds…
Just because your mortgage loan has been approved doesn’t mean you can take it easy. Try to avoid these three things for a smooth home closing:
- Changing your down payment source
- Increasing credit balances or applying for new credit (credit cards, new car)
- Assuming that your final documents are what you expected
Once you have your loan approval, just take a moment to chill out. Don’t do anything foolish to make your lender have second thoughts. And get your final documents in advance so you have time to review them carefully before signing.
How likely is your home closing to fail?
The fact is that a small percentage of home sales are tanked between the offer being accepted and loan closing. In 2017, U.S. News & World Report presented a study that explored just how often that happens. It was proposed that the number of loans dying was increasing nationally: to 3.9% in 2016 from 2.1% in 2015.
I mean, you’d be delighted if you were playing a lottery with a 3.9% chance of winning, right? But you’d be a whole lot less happy if your doctor gave you a 3.9 percent chance of dying from a condition she was diagnosing. Hindsight will always be 20/20 on the odds. So don’t worry unless you need to.
No Need To Panic!
I mean yes, the possibility of your deal dying becomes less the longer the purchase agreement survives. Some common causes for these failures include the:
- Short-fall appraisal
- Home inspection uncovering unexpected major issues
- Finance falling through
- Title search revealing issues
- Home proving uninsurable
But, by the time you’re nearing your transaction’s finish, you’ll have jumped through most of those hoops. But that doesn’t mean there aren’t more opportunities to flounder. So keep your focus.
Things Might Get A Little Rough…
This may not be as easy as it sounds. Very few times in your life are likely to be more busy or stressful than the last couple of weeks before your purchase closing.
But you really, really have to save some time and brainspace for your purchase. One way you can do that is to begin your preparations for the move earlier than most people do.
Don’t futz with the down payment…
Don’t change the source of your down payment! Your lender will absolutely hate that!
Lenders have one overwhelming priority: to make sure you as the applicant are ready, able and willing to make timely payments on the your new loan. Affordability is a big issue here. And your down payment plays a big part in your lender’s detailed assessment of the sort of borrower you’ll make.
You already told your lender where you’ll be getting the down payment. And you’re almost bound to delay your home closing if you suddenly change your mind at the last minute. Indeed, you might even sink it.
Down payment gifts
If Grandma or Uncle Moneybags generously offers to give you your down payment, by all means, take the money. Just don’t try using it in the way they intended.
Instead, stick with the funds you’ve already set aside and use your gift for your closing costs or to establish an emergency fund, anything besides your down payment.
Of course, if Grandma makes her offer while you’re still hunting for a home, that’s different. Mortgage lenders don’t really ever have a problem with gifts for down payments. But you’ll like have to meet three conditions:
- It really is a gift and not a disguised loan
- The donor writes a letter confirming it’s a gift
- You document your receipt of the money and its source with complete transparency
You’ll have to show that the giver had the funds to give (with a bank statement), that the funds were transferred to the buyer (with a copy of the transaction receipts or statements), and that the funds are a gift and repayment not required (with a letter from the giver).
STAY. AWAY. FROM. NEW. CREDIT.
Many lenders routinely carry out a last-minute credit check in the days leading up to closing. So make sure your credit score remains as good or better than it was when your loan application was approved. It’s not hard to do that:
- Keep paying your bills on time
- Don’t increase your credit or store card balances, even temporarily — You may know you’re going to pay down additional debt at the end of the billing cycle, but the scoring algorithm won’t make that assumption. Use a debit card for purchases
- Don’t open new credit accounts — Just applying for credit gives your score a small hit
- Don’t close credit accounts — Part of your score depends on the average age of all your accounts: the older the better. Closing old accounts drag down that average age and so your score
Don’t. Change. Anything. (Unless you’re paying down existing card balances, which should improve your score.)
Read your closing documentation upfront
Mistakes and misunderstandings happen. It’s not rare for errors to creep into documentation prior to a home closing. Occasionally, those errors are serious.
What you don’t want is for those errors to become apparent only on closing day when your pen’s hovering over the contract. Read the documentation you’re sent in advance of closing as soon as it arrives. That way, you may be able to head off problems in time to avoid screwing up your timetable for moving.
The closing disclosure is usually the most important of those documents. This will lay out all the terms of your mortgage. And you need to check every detail.
Closing disclosures aren’t as complicated as they used to be. One-time federal watchdog, the Consumer Financial Protection Bureau, imposed a simplified and standardized form on all lenders. Going through it should now take you minutes rather than hours.
If you spot a material mistake in the document, contact your loan officer or real estate agent right away. The longer they have to resolve your issue, the better your chances of your home closing going ahead on schedule.
The Mortgage Reports has a guide to closing disclosures, which includes sample pages so you’ll know what to expect:
Another document you should check pre-closing is your title commitment, also known as a “preliminary title report” or “title binder.” This confirms that your property title is insurable and probably clear. Title insurance protects you in the event somebody later tries to make a claim to your property.
However, your insurance only covers you against unknown issues. Your insurer won’t protect you from any known potential claims in your title commitment.
So make sure your document doesn’t list any possible claims for rights of way, easements or boundary disputes.
Relax — just not too much
You read earlier that 3.9 percent of residential property transactions fail. That means 96.1 percent succeed. And, by the time the closing table is in sight, your chances are already much better.
Providing you take reasonable care over your down payment, credit and closing documents, you don’t need to lose any sleep over your home closing.
*This article does not represent legal interpretation or advice. This is not a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Seattle Mortgage Brokers, LLC NMLS: LO# 305371 MB# 761615