Loan Closing: What Not to do While You Wait
Waiting on a loan closing? Make sure you don't do these mistakes!
By AgSouth Farm Credit
We’ve seen it before.
You’ve applied for a home or land loan, you’re waiting for it to close, and you start envisioning alllll the ways you’re going to make the most out of your new purchase. Maybe you’ve been thinking about some new furniture; or perhaps, that zero-turn lawn mower that just went on sale at Lowe’s. Unfortunately, on more than one occasion, a buyer has gotten the wind knocked out of their sails by making avoidable mistakes while waiting on their loan to close.
If you have doubts about doing anything while your loan is in the processing phase, please consult your lender before you do it. Many buyers view the loan application procedure as a static action - a snapshot of their financial lives at a given moment in time. The truth is, lenders see this as an on-going process that takes into account everything you do up until you sign those closing papers.
To make sure you’re sipping lemonade on your new back porch as quickly as possible, try to follow these tips while you wait for your loan to close:
Do not take on new debt.
The temptation is strong. You want new things! Credit is easy to get these days and everyone offers financing with no money down. But taking on more debt will change your debt-to-income ratios, which could postpone your closing as the lender waits for the new debt to be verified. New debt could even lower your credit score, meaning that you no longer qualify for the loan you thought you had locked down tight.
Do not close out any current credit accounts, transfer balances, or pay off collections.
Moving money around often signals to the lender that there is some financial stress not previously disclosed. Closing accounts sounds like a good thing, right? That means you have less debt! But, it also means that you no longer have that credit available to you should you need it. The best advice is to ask your lender before making any changes to your financial situation while your loan is in the process of being approved, even if you see those changes to be positive ones.
Do not substantially increase your credit card balances.
We all have credit cards, and many of us use them instead of debit cards or having to carry cash around. If you typically have a credit card balance of a certain amount, you don’t need to worry about going a few dollars over for a celebratory dinner. Just don’t charge anything atypical until your loan closes – no airline tickets and no expensive items for the new home you’re waiting to move into.
Do not change jobs or alter your compensation plan.
You’re on a winning streak! Not only are you in the middle of buying the home you’ve dreamed of, but you just got offered a job that’s closer to your new home and will cut the drive by an hour a day, AND it pays more money! While this is certainly a great thing, don’t accept that position without first talking to your mortgage lender. Sounds crazy, right? But one of the factors mortgage companies consider is length of your present employment, and they like stability. At the very least, changing jobs initiates the need for more paperwork, and may delay your closing.
Do not move money between bank accounts.
Lenders are required to verify deposits into the account(s) you are using for funds to close. The more you move money around, the greater the paper trail you will be required to produce, leaving you with – you guessed it – time delays on your closing!
Do not pack important documents.
Go ahead and pack your clothes, box up those photos, and bubble wrap grandma’s good china. But do not pack your bank statements, tax returns or other important paperwork. Most especially, do not pack your driver’s license or checkbook! More than one buyer has had closing delayed while a friend or relative hurried over with additional funds because the checkbook was in the moving van.
Do not lease a new car.
Many people do not consider this as taking on new debt because it’s short term and not really “yours.” You’re just renting it for a specified time and will probably dump it as soon as the lease is up and you can get a newer model. Lenders have a differing opinion: You have obligated yourself to make payments that will affect your credit and income-to-debt ratios.
Got a question about the loan process? Contact us!