Avoid These 6 Mistakes Before Closing

Mistake #1: Changing Marital Status

Everyone applying for a mortgage loan must disclose their marital status. While buyers may not feel like their marital status is relevant, this information gives mortgage lenders a complete picture of the applicant’s financial situation. A change in marital status will completely change the loan application for an individual – even if the individual isn’t adding the spouse to the loan.

It’s not uncommon for an engaged couple to want to purchase a new home together to live in after they get married. If this is your client’s situation, ensure that they communicate this information to their lender when they submit their loan application. Once that loan application has been filed, a buyer’s marital status needs to stay stable – no last-minute Vegas weddings allowed.

But this advice isn’t just for newlyweds: divorce will also impact the status of a loan application since divorce can cause an individual’s credit score to drop. Sellers who are in the process of getting a divorce should also avoid finalizing their divorce while under contract.

Alabama law states that individuals are either married or they’re not: there’s no in-between status. If you’re engaged to be married, you’re single. If you’re separated but not divorced, then you’re still married. A buyer’s failure to accurately disclose their marital status at any point during the closing process can delay or even halt the transaction.

Mistake #2: Changing Jobs

A new job is a huge transition that often has people looking for a new home, whether it’s to relocate or because of a change in income. But individuals purchasing a home should avoid changing their job status after their loan application has been submitted.

The loan application is processed with information about an individual’s existing salary and income, so if this changes in any way, it can lead to a delay in closing. Some buyers may not think their job change is relevant to the lender, especially if it’s a promotion or a higher-paying job. But all changes to employment status must be reported to the mortgage lender immediately.

What about home buyers who are moving because of a new job that they haven’t yet started? If you’re working with one of these buyers, you should advise your client to talk with their lender about their particular situation before submitting a contract on a house.

And it’s never a good idea to try to hide changes in employment from the mortgage lender, since the lender can verify employment any time prior to closing. The key to avoiding delays in closing due to a change in jobs is early, transparent communication with the lender. If your client mentions a job change to you, make sure they’ve talked to their mortgage lender as well.

Mistake #3: Making Another Big Purchase

When buying a home, there are often other big purchases that go along with it such as furniture and appliances. But homebuyers should avoid making big purchases after they’ve submitted their loan application.

What is a big purchase? A big purchase is anything that’s outside normal spending. So a homebuyer can still buy groceries, make car payments, pay for their yard service, and go to restaurants. The mortgage lender will, however, flag any unusually large expenses. Lenders are looking for financial stability, so they’ll be evaluating financial records both when the loan application is submitted and a few days prior to closing.

Homebuyers should avoid using large amounts of cash or credit while waiting to close. While adding debt is always a bad idea during this time, many homebuyers are surprised to learn that even large cash purchases can impact their loan application. Cash purchases can also potentially eat into funds earmarked for closing costs.

Advise your client to check with their lender before making any kind of large purchase. While they don’t need to go on a spending freeze, their lender can provide guidelines specific to their financial situation. After their mortgage loan closes, clients can spend money however they’d like – as long as they’re still able to make their mortgage payments.

Mistake #4: Making Large Bank Deposits

Just like large expenses, large deposits can also be a red flag to lenders. This can be surprising to some homebuyers, but mortgage lenders are looking for a consistent financial story over the past 60 days before approving a loan.

Some homebuyers may plan to use a gift or the sale of a large item towards their down payment. But large deposits will require documentation that shows where the money came from. This is to ensure that no deposits violate deposit guidelines and that the money hasn’t come from a new personal loan.

For example, down payment gifts are tightly restricted and generally must come from a family member. If your buyer is using money from a gift for their down payment, documentation can include a letter from their family member about the money along with a canceled check. If a buyer sells something large on Facebook Marketplace (such as a golf cart or piece of furniture) before moving, they’ll need to show proof of this sale to support the deposit. This can include a screenshot of the ad, the canceled check, or a signed bill of sale.

A tax refund is an exception to the large deposit rule since the IRS is a reputable source. Before a client submits their mortgage application, be sure to ask if they’re anticipating any unusual deposits or gifts. Early, transparent communication with the lender about these deposits will minimize closing delays.

Mistake #5: Adding (or Paying Off) Debt

Once the mortgage application has been submitted, a homebuyer should avoid making any big financial changes – including any changes to lines of credit. Adding or closing a line of credit will have an impact on an individual’s FICO score and impact their loan status.

Prior to closing, homebuyers should avoid adding any new debt. This means personal loans, new credit cards, or car loans are completely off-limits. Even if a buyer has excellent credit and that credit card has an amazing sign-up bonus, no new debt should be added during this time. Additionally, buyers should never co-sign a loan before closing.

However, buyers may be surprised to learn that it can actually harm their credit to pay off debt during this time. They should avoid closing any credit cards or paying off any loans after their mortgage application has been submitted.

If your client is planning to make changes to their debt, these need to be made before applying for their mortgage. It may be beneficial to pay off high-interest debt (such as credit card debt) before applying for a loan, but every credit situation is different. Buyers should ask their lender for specific advice before submitting their loan application.

Mistake #6: Forgetting to Pay Bills

Moving can be a busy and stressful time. Between submitting paperwork and scheduling movers, it’s normal for a few details to fall through the cracks. But one thing your buyers cannot forget is to pay their bills.

Payment history is an important part of an individual’s credit rating. The bank will look at this history when an individual applies for a loan, but late payments while waiting to close won’t go unnoticed. Existing mortgages, credit card bills, and student loans still need to be paid on time, and that last utility bill won’t just go away. Even one late payment can lead to delays or issues with closing.

Once your client has been approved for their mortgage loan, they need to ensure that their financial situation remains stable and predictable. Many homebuyers may be unaware that certain actions can impact their loan application, so it’s always helpful to take a few minutes to educate your clients.

But certain situations may be unavoidable. If a situation does occur that will impact your client’s loan application, assist your client in communicating these changes to their lender as soon as possible. Clear, early communication will minimize delays to closing.

At South Oak Title and Closing, we work hard to help clients have smooth, stress-free closings. We’re always happy to answer your questions throughout the closing process, and we love partnering with realtors for education and professional development. Contact us with your questions, or order a title and schedule your closing today.