In the spirit of the upcoming Fourth of July holiday, I've prepared some examples of real-life closing crises you'll want to keep in mind if you're thinking about applying for a mortgage in the near future. These are the most common mistakes that are made during the loan process, and they can quickly turn the process of closing on your dream house into a nightmare.
I was sitting at a closing last year with a customer, and while he was signing the papers, he glanced at the employment section of his loan application, and casually mentioned that he wouldn't be working there effective the next day. He thought that because we had already approved the loan, his employment wouldn't be verified again. Here's the deal: Employment will be verified prior to closing, on the day of closing, and often after closing.
If you have any plans to leave your job, let your mortgage professional know up front so there isn't a closing crisis. In the example above, my customer was OK, because his wife made enough to qualify for the loan on her own. Often, though, these last-minute employment changes can prove disastrous.
The loan's approved, the moving truck is scheduled, notice has been given to your landlord, and you're about to go get the keys to your dream house. Suddenly you get a panicked call from your mortgage professional, who has noticed a bunch of inquiries at the local furniture store and a local car dealership. You casually mention that you bought a sofa set and a new canopy bed for the master bedroom, financing at 12 months "same as cash." And the kids are getting bigger, so you needed a minivan and couldn't pass up the 2% financing over the Fourth of July holiday weekend.
The problem: The new debt puts your debt ratios completely out of whack, and now the loan is on the verge of being turned down. With debt ratio requirements the strictest they've been in recent history, this mistake can be devastating. Don't make any changes to your debt until you have the keys to your house. Lenders can and will run credit "refreshes" all the way up to the date of closing to verify no new accounts have been opened.
Follow the money
You've signed the closing papers, and you've handed over your cashier's check for the down payment. Your mortgage professional starts sweating when he notices which bank the check is written against. The problem: It's not an account that was disclosed on the initial loan application.
What's the big deal? You have a couple of extra savings and checking accounts you keep chunks of cash in, and for privacy reasons you only like to provide the accounts that are needed for the loan approval; nobody at the lender knew this account existed until today.
But because of all the money laundering and mortgage fraud schemes of the housing boom and bust, lenders always want to know where the money is coming from up front. Make the decision about which account you will use from day one, and stick with it all the way to closing to avoid an 11th-hour crisis.
These three real-life closing crises all have one thing in common: They all could have been avoided with some extra communication before the process began. Job and income changes, sudden increases in credit, or changes in where your money is coming from should all be disclosed as early in the loan process as possible in order to keep your home purchase from blowing up like an Independence Day fireworks show.