Getting mortgage approval is not the end of your journey when buying a house. These are all things you should avoid when closing:
- Increasing your credit balances or applying for a new credit
- Changing your down payment source
- Assuming your final documents are what you expected
Once you get your mortgage approval, don’t do anything that may give your lender any doubt. Be sure to request that your final documents to be sent to you so you can review them before signing.
Is It Common for a Home Closing to Fail?
Between an offer being accepted and the actual home closing, only a small percentage of home sales go wrong. In 2017, the U.S. News & World Report broke down a study on exactly how many home closings fail. They found the number of sales that failed had increased from 2.1% in 2015 to 3.9% in 2016.
While these numbers are small and might not bother you, they would if you were one of the 3.9% that had a closing fail.
There Is No Need to Panic
The longer the purchase agreement survives, the less likely your deal is to crash. Some common reasons for failed sales are:
- Home is uninsurable
- Title search revealed issues
- The financing fell through
- Major issues were found during the home inspection
- The appraisal fell short
You will have cleared most of these obstacles by the time you approach the finish line anyway. That doesn’t mean that something can’t go wrong, so make sure you keep up to date and touch base with your lender.
It Can Be a Tough Process
The last couple of weeks of closing is going to be pretty hectic and stressful. It’s not as easy as the pre-approval process. One way to reduce stress is to begin preparing for your move early. Let’s talk about some of the hold-ups most buyers deal with during the final stages of closing.
Don’t Mess With Your Down Payment
The closing period is the time that you don’t want to make any major changes, like the source of your down payment. Your mortgage lender’s biggest priority is to make sure that you are ready and able to start making payments on their new purchase. Your down payments are a big part of your lender’s assessment of what type of borrower you will make.
By this time, you would have already told your lender where your down payment will be sourced from. It will almost always delay your home closing if you decide at the last minute to change your mind.
For example, let’s say you were planning on using retirement savings as the source of your down payment, but at the last minute, you sold a few collectibles and wanted to use those funds instead. This can delay your closing by nearly a week. This delay Is because you will need to prove that you owned the collectibles, that you did sell them, and that the buyer paid for your collection. During this time, if the seller receives another offer, you could potentially lose the house.
Using Gifts for Your Down Payment
During the last step in the home-buying process, if a relative tries to give you money, do not put it towards your down payment. You can use the cash for other things, like moving expenses, fixing or updating the house, or saving it. Switching your down payment to a cash gift at the last second can delay your closing. You can use the cash gift to pay for your closing costs or anything else but your down payment.
If you are presented with a cash gift while still house shopping, this is a different story. Lenders do not have a problem with using gifts for your down payment. You will have to meet some conditions, which typically include:
- Verify that it’s really a gift and not a loan.
- The donor will need to write a letter confirming the money is a gift.
- You will need to document your receipt of the money and the source.
You will also need to show that the giver had the funds to give away, and this is usually done with a bank statement. You will also need to show that the funds were transferred to you, which you can do this with a copy of the receipt or a bank statement. A letter from the giver is also required, and it should mention the giver’s relationship to you and that it is a gift, not a loan.
During This Period, Do Not Open up Any New Accounts or Max Your Balances
During the days leading up to closing, most lenders will do a final quick credit check. You need to make sure your credit stays as good as it was when your loan application was approved. Some things to do are:
- Keep consistently paying bills on time.
- Do not open up any new credit accounts- even applying for new accounts hits your credit. Wait until after you close and get your house keys to take out a new loan.
- The same goes for closing credit accounts. A part of your credit score will depend on the average age of your accounts, having older accounts is best. If you close old accounts, it will pull down your score.
- Do not increase your credit balances. Even if you know you are going to pay down the balance on the next billing cycle, the scoring algorithm doesn’t reflect that. Overusing your credit cards can hurt your credit score, so it’s best to stick to only using your debit card during the closing process.
In other words, don’t change a thing. You can still work on paying down balances, but don’t do anything drastic.
Be Sure to Read Your Closing Documents
Mistakes and misunderstandings can happen. It’s possible for an error to work its way into your documentation, and sometimes these errors can be big. Finding errors right as you are about to sign can further delay the closing process.
To avoid potential issues, read the documents that you are sent in advance before signing them. This way, if there are any issues you can have them corrected before closing time.
Closing Disclosure
The most important part of the documents that you sign will be the closing disclosure. This is where the terms of your mortgage will be laid out and you must make sure you check every detail.
Closing disclosures used to be very complicated, but now they are not as bad. The Consumer Financial Protection Bureau created a simplified and standardized form for all lenders in order to simplify the process. It used to take hours to cover, it now takes minutes.
If you find a mistake in the documents, contact your loan officer immediately. The longer it takes to fix any errors can prolong your closing.
Title Commitment
Your title commitment is another pre-closing document that you should check. This document can also be known as a title binder or preliminary title report. This document confirms that your property title is probably clear and insurable. If someone, later on, tries to claim your property, title insurance will protect you.
Your insurance will only protect you from unknown issues. Insurers won’t help you if you were aware of any potential claims in your title commitment. It’s important that you make sure your document doesn’t have any possible claims for easements, rights of way, or other boundary disputes.
Closing Can Be Stressful, but You Can Rest Easy Knowing It Will Work
Even though 3.9% of transactions don’t make it to the finish line, that still means that 96.1% are completed successfully. There is a good chance that if you are making it to the closing table, you are already on a good track to finish. Make sure you do not do anything last minute that can risk your finances or credit, and you should be good to go.
