You’ve gotten pre-approved with a local mortgage lender, found the perfect home, and negotiated with the seller for a fair price. Your home inspection went well, and the home appraised for slightly more than your contract price. Nothing could go wrong at this point, right?
A recent study showed that 36% of contracts never made it to the closing table due to financing. Although lender issues can arise out of the blue, it’s surprising how many of these problems are preventable. Home buyers often assume that once they’re approved for their home loan, it’s a done deal in terms of financing. However, this is simply not the case. Your approval status is based on the income, employment, debt-to-income ratio, and other factors you had at the time of your approval. If these factors change before your closing takes place, you could easily lose your financing over mistakes such as these below. Follow these rules, and be sure to talk with your lender about how to keep your financing on track for closing!
Don’t Make Large Deposits or Withdrawals from Any of Your Bank Accounts
Your lender wants to see steady balances in your accounts. Deposits or withdrawals that are greater than $500 can cause red flags and lots of questions. For example, are you receiving a sizable deposit because there is income you’ve not previously stated? Regular trips to the grocery store or costs that you’ve already disclosed such a monthly car payments are not a problem. However, if you need to deposit or withdraw a large sum from your bank account, check with your lender first!
Don’t Make Any Large Purchases Before Closing
I’ve seen buyers lose their financing (and fall out of contract for a home they really wanted) because they bought a new car or furniture for that new house. These are both real life examples. In both cases, these purchases put the buyer’s debt-to-income ratio in a range that was too risky for the lender to take on. I know it’s tempting to buy items like a top of the line refrigerator or new den furniture, but it’s important to ask your lender beforehand. Or, play it safe and simply wait to make these purchases until after closing!
Don’t Open a New Line of Credit or Close an Existing One
These actions can affect your credit report more than you realize. Unless your lender tells you to pay off a balance for an old credit card and then close the account, it can do serious damage to close out an old line of credit – and many buyers don’t realize this. The same is true with opening a new credit card. Again, you don’t want to make any major changes to your lines of credit prior to closing.
Don’t Change Jobs, Quit Your Current Job, or Become Self Employed
This rule can be tricky for buyers who are relocating to a new city because getting a new job is practically inevitable. However, it’s important to talk with your lender about changes with your employment because it affects how your income is documented. He or she might need to see a letter from your employer with specifics based on your situation.
Don’t Co-Sign a Loan for Anyone
Let’s say that your daughter asks you to co-sign so that she can buy a car. She would make all monthly payments on it and assume all costs, but she simply needs for you to co-sign on the loan. You would need to wait until after closing on your home to co-sign for her because the car dealership would originate an inquiry into your credit. Plus, the cost of the car could hurt your current debt-to-income ratio.
Don’t Miss Payments on Credit Cards, Etc.
Keep paying all of your bills on time prior to closing. I realize this rule seems like a no brainer, but it’s worth a reminder if it means keeping you on track to close on your new home!