The acceptance of your mortgage application does not imply you can rest. Here are three things to avoid for a successful real estate closing:
- Changing your down payment’s source
- Increasing your credit balances or making a new credit application
- Assuming your final documents are as anticipated
After receiving mortgage approval, maintain a level head. Do nothing to cause your lender to have second thoughts. And obtain your final paperwork in advance so you can properly analyze them before signing.
How Likely Is the Failure of Your House Closing?
A tiny percentage of house transactions have complications between accepting the offer and closing. In 2017, U.S. News & World Report highlighted research investigating how frequently this occurs. It was estimated that the national default rate rose from 2.1 percent in 2015 to 3.9 percent in 2016.
You would be thrilled to play a lottery with a 3.9% chance of winning the prize. But you would be less pleased if your doctor told you that you had a 3.9% probability of dying from the ailment she was diagnosing. Odds are, well, odd.
The longer the purchase agreement is in effect, the less likely your transaction will fail. Typical reasons for such failures include:
- Appraisal falls short
- Home inspection revealing unanticipated severe defects
- Expenditure falling short
- A search of titles exposing problems
- Residence proving uninsurable
And by the time you near the finish line of your deal, you will have overcome most of these obstacles. However, this does not imply that there is no more potential for error. Maintain your attention.
Expect Challenging Conditions
However, this is more difficult than it seems. Few times in your life are likely to be busier or more stressful than the final two weeks preceding the closing of your house.
Nevertheless, you must set aside time and mental space to buy. You may begin your relocation preparations sooner than most individuals.
Too many homebuyers fall victim to these pitfalls during the final phases of the closing process.
Do Not Tamper With the Down Payment
There is a better time to switch your down payment source. Your lender will be appalled.
The first objective of mortgage lenders is to ensure that the applicant is prepared, able, and willing to make timely payments on the new mortgage. Here, affordability is a major concern. And your down payment is a significant factor in your lender’s careful evaluation of the type of borrower you will be.
You have previously informed your lender of the source of your down payment funds. And you are nearly certain to postpone your house closing if you change your mind at the eleventh hour. Indeed, you might even sink it.
One borrower in Nevada, for instance, put “retirement funds” as the source of his down payment, but at the last minute, he sold his baseball collection and assumed he could use the proceeds as a substitute.
As a result, the closure was delayed by about a week, as he was required to provide evidence that he had had the collection, that he had sold the collection, and that the buyer had paid for the collection. If the seller had a superior backup offer, he would not have lost the property.
Down Payment Gifts
If Grandma or Uncle Moneybags kindly offers to give you the down payment at the last minute, take the money. Just don’t attempt to use it as they intended.
Use the gift for closing fees or building an emergency fund, but not for your down payment.
The situation is different if Grandma offers while you are still searching for a home. Gifts for down payments seldom pose an issue for mortgage lenders. However, you must satisfy three conditions:
- It is a real present, not a hidden loan.
- The donor confirms the donation in writing.
- You document the source and receipt of the funds with total transparency.
You must demonstrate that the giver has the cash to donate (through a bank statement), that the funds were transferred to the recipient (by a copy of the transaction receipts or statements), and that the monies are a gift with no payback obligation (with a letter from the giver).
Do Not Use Credit Cards or Open or Terminate Accounts
Numerous mortgage lenders frequently do a credit check in the days preceding closing. Ensure that your credit score maintains at or above the level at which your loan application was accepted. That is not hard to accomplish:
- Continue to pay your payments on time.
- Do not increase your credit or store card balances, even momentarily. The scoring system will not assume you will pay extra debt after the billing cycle. Utilize a debit card for transactions
- Do not create new credit accounts – just applying for credit has a modest negative impact on your score.
- Don’tDon’t cancel credit accounts – A portion of your credit score is based on the average age of your credit accounts; the older, the better. The average age of your accounts decreases as old accounts are closed, lowering your score.
Don’t. Change. Anything. (Except if you are paying down current card debt, which can increase your credit score.)
Review Your Closing Documents
Mistakes and misunderstandings happen. Before a house closing, it’s not uncommon for inaccuracies to seep into the paperwork. Sometimes, these mistakes are grave.
You do not want these errors to be discovered on the closing date when your pen is poised over the contract. As soon as the paperwork you’re supplied before closure arrives, you should review it. Thus, you may be able to prevent complications from interfering with your relocation schedule.
Typically, the closing disclosure is the most crucial of these documents. This will detail every aspect of your mortgage. And you must examine every detail.
No longer are closing disclosures as difficult as they once were. The Consumer Financial Protection Bureau, a former government watchdog, mandated a streamlined and consistent form for all lenders. It should now take minutes rather than hours to complete.
If you find a significant error in the paperwork, call your loan officer or real estate agent as soon as possible. The longer they have to remedy your issue, the greater the likelihood that your house closing will occur on time.
The Mortgage Reports provides a guide to closing disclosures, complete with example pages so that you know what to expect:
The title commitment, also known as a “preliminary title report” or “title binder,” is another document you must review before closing. This verifies that your property’s title is likely to clear and insurable. Title insurance protects you if a subsequent claim is made on your property.
However, your insurance policy only protects you against unforeseen problems. Your insurance will not defend you against any possible title disputes that are known.
Consequently, ensure that your document does not contain any potential claims for rights of way, easements, or boundary conflicts.
Take a Breather
You already read that 3.9% of residential real estate transactions fail. Consequently, 96.1 percent succeed. And your odds have significantly improved by the time the final table comes into view.
As long as you pay proper attention to your down payment, credit, and closing paperwork, there is no need to lose sleep over your house closing.