Closing on a Mortgage? Avoid These 5 Mistakes!

You’ve gone through the house hunting process and found the perfect home for you—you’ve even made an offer and it was accepted. Congratulations! As you approach the closing of your mortgage, this period can be filled with excitement and anxiety as you wait to begin your life in a new space. But before you can sign papers and receive the keys to your new home, your mortgage lender has to give final approval to release the funds for your mortgage. During this time, they’ll be carefully examining your credit history.

To ensure the closing process goes as smoothly as possible, there are specific things you should avoid doing. Here, we’ll review eight common mistakes that could potentially jeopardize the closing process or create complications that could put your mortgage approval at risk.

1. Changing Jobs

Your job and income history are key factors a mortgage company looks at when giving you a loan estimate and ultimately preapproving you for a home loan. That’s because your employment history helps a lender determine the monthly payment amount you can afford, and in turn, the actual loan amount. As a result, if you change jobs during the closing process—or make any decision that will significantly impact your monthly income—it can raise red flags for your mortgage lender and impact your loan approval.

If you do decide to change jobs, the loan will need to go through the underwriting process again, increasing the time it takes to process your mortgage. It’s best to avoid changing your professional situation until you’ve signed on the dotted line. Otherwise, getting a mortgage can be much more complex and time-consuming than necessary.

2. Taking Out New Lines of Credit

Another no-no during the closing period is applying for or taking out new lines of credit. Lenders use your credit score and debt-to-income ratio to determine whether you should be approved for your mortgage. If you decide to apply for new credit cards, auto loans, or personal loans before closing, this has two effects: you have hard inquiries on your credit report, which may lower your score, and you have also taken on more debt. Both of these factors may trigger another round of underwriting, and may even cause a mortgage lender to reconsider your loan approval or your interest rate.

3. Making Expensive Purchases

While it might be tempting to buy furniture or appliances on credit for your new home before you close, it’s best to avoid racking up significant charges before closing day passes. Large purchases on your credit card can increase your debt load, which might cause lenders to worry whether you’ll be able to make your mortgage payments. Expensive new purchases can also increase your debt-to-income ratio and have a negative impact on your credit score as well—information that your mortgage lender will be reviewing with a fine-tooth comb as they work on the final approval for your mortgage.

4. Spending Your Savings

When closing on a house, it’s important to have quite a bit of cash on hand. You need to show your lender that you can fund not just your down payment, but also pay closing costs. Don’t deplete your savings or move large amounts of money between bank accounts, as this can complicate your mortgage lender’s verification process of your financial readiness to purchase a home.

5. Accept Large Cash Gifts

As mentioned, it’s important not to deplete your cash savings before you close on a mortgage, but it’s also unwise to accept any large infusions of cash as well. Normally, getting a large cash gift would be a welcome event, and you’d think a lender would also be glad to see more money in your accounts. However, while you’re in the closing process such large transactions could cause a lender to delay or even cancel a mortgage for the following reasons:

• It may look like you took out a new loan or debt that you are concealing from your lender.
• The extra cash may look like you have unreported additional income, which could impact the underwriting process.
• It might be a down payment gift, which must follow certain rules depending on the type of mortgage loan.
• Lenders may also be concerned that you have taken out a loan to help with the down payment, which means that another entity has a financial interest in your property. Mortgage lenders need to protect their funds, so they will not give someone a mortgage who has borrowed money for the down payment (with the exception of special down payment assistance programs). Even a 0% interest loan from a family member is enough for a mortgage lender to cancel your mortgage approval.

If you must deposit a large sum of cash in your accounts during the closing process, be sure to communicate promptly and openly with your lender to determine what documentation you must provide to ensure the closing process continues smoothly.

6. Not Paying Your Bills

Good financial hygiene likely helped you get preapproved for your mortgage loan in the first place, and maintaining good financial habits during the closing process is equally important. If you suddenly stop paying your bills on time, it can be an indicator to lenders that you won’t be able to make your mortgage payments once you close on the loan. Continue to pay your bills on time and avoid any missed or late payments in the days leading up to signing your closing documents since lenders may conduct additional credit checks, and negative changes to your credit profile can affect the loan approval.

7. Changing Banks

When you go through the underwriting process, your lender will ask for any financial account you own—including retirement accounts. They do this for a few reasons, including: to make sure you have the funds to the down payment and closing costs, to make sure you haven’t taken on additional loans without informing them, and to make sure your cash flow is what you say it is. Lenders will often ask for bank statements to document income history, and changing accounts can lengthen or complicate the verification process.

8. Ignoring Important Communications

While this should be obvious, it still needs to be said. Stay in close contact with your lender and closing agent, responding to any requests for information or documentation in a timely manner. Consult with your loan officer on a regular basis to make sure you’re aware of any specific requirements or guidelines put in place by your lender. If you ignore important communications or don’t promptly provide requested items, it can potentially delay or jeopardize the closing.

Arrive at the Closing Table with Confidence

The time between when your offer is accepted and you’re finally able to sign all the legal documents and close on your mortgage can be a nerve-wracking period. By avoiding these common mistakes, you can streamline the closing process and get into your new home without any hiccups.