5 Actions to Avoid While Awaiting Your Mortgage Closing

By
Mortgage and Lending

"Yes! We were finally approved for our loan and we are on our way to realizing the American Dream of homeownership. Let's celebrate by going to Las Vegas before we close on our loan. Remember: 'What happens in Vegas, stays in Vegas.'"

Whoa! Let's slow down, here. If you want to make sure that your home loan is "in the bag," then don't be so quick to pack that bag for the trip to Vegas.

I remember a couple that had been approved for a loan and were waiting for it to fund; however, a pre-funding employment verification revealed that the wife had just quit her job. Unfortunately, they needed both incomes to fund the loan and, consequently, their loan was put on hold until she found another job.

None of us want to end up in a situation like that; therefore, let's review 5 things to avoid while you are waiting for you loan to close:

1.  Taking on financial obligations that will increase your monthly payments. Buying that new car, even if it is that hybrid you've been researching all this time, may increase your debt-to-income ratio just enough to disqualify you from your loan. This holds true for any type of monthly financial obligation that will increase your total monthly debt payments such as charging up a storm at ritzy hotels in Las Vegas.

2.  Opening new credit lines. Yes, that 0% for 12 months offer may sound very enticing, but this may change your risk profile or decrease you credit score just enough to put a wrench in your approval.

3.  Paying more than 30 days late to your creditors. You might think that since your credit report has been pulled already, your credit history won't matter too much until the next time you apply for a home loan. However, sometimes your credit report might be pulled again for crazy reasons such as your file being corrupted in the computer system and the only way to restore your credit report is by re-pulling your credit. Unfortunately, if that late payment shows up on the new report, then your score or profile may be sufficiently affected to cause your loan to be denied.

4.  Making large withdrawals or deposits to your bank account. If unusual amounts of withdrawals or deposits are found in your bank account, then underwriting may want an explanation of that activity which could affect the loan decision.

5.  Quitting your job or suddenly turning into an entrepreneur.  Banks want to give mortgage loans to people who have a good prospect of continuous employment and income. If you quit your job or are laid off, then this will cause underwriting to reconsider their decision since it may be uncertain whether your income will continue. Further, if you suddenly decide to tell your employer to "take this job and,...!" and then you go and open up that espresso shop you always dreamed about, then this would put you in a different category. Being self-employed carries different type of risks and lenders generally like to see you running that business for around 2 years to feel good about your future income stream. 

Therefore, before you take any of these actions or any that will change your original circumstances, speak with your Mortgage Consultant first to make sure that your loan approval will not be in jeopardy.

Has anyone seen any other actions on the part of a borrower that caused a loan to be denied or the approval to be postponed?

 


Comments (13)

Robert Worthington
Worthington Realty - Manitowoc, WI

David, great blog and thank you Sir for the sound yet humble advice, I will certainly remember you words.

Sep 05, 2008 05:48 PM
Richard V. Foster, Esq.
Nevada Perfect Homes - Henderson, NV
Broker (58356) - ABR/M, CREN, CRS, GRI, RRG, SFR
This is great advise... I had a client that was approved to purchase a $1,300,000 home with 20% down... He went out and purchased a brand new Hummer (the original) for $85,000 and changed his debt load. Needless to say the lender was not impressed and killed the loan. It tookus two weeks, two points, and an extra 1.25% interest rate to close the loan. NEVER EVER EVER spend a dime before close of escrow. But remember, do not pay anything off if you do not have too either, I had a client change his credit score for the bad, by paying off an old collection and it hit his score for 40 points because it made the collection current.
Sep 05, 2008 05:57 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

A buyer for one of my listings did just that: as soon as her offer got accepted, she decided to celebrate in Las Vegas and charged up a storm. Her agent was embarrassed to tell me that this woman, who had been outbid so many times on offers for her first home, did such a foolish thing.

Just like another client who wanted to move up to a bigger house. He got his offer accepted. But when it looked like his monthly payments would be more than he wanted, inexplicably, he decided to drown his sorrows by buying a new Corvette!

Foolish, foolish things to do. So close but....

Sep 05, 2008 07:48 PM
Kathy Fey
Fey & Associates - Dacula, GA

How true!  So many buyers are so excited their new purchase they want to immediately furnish that new house so by closing all they have to do it move in (with their new furniture!).  I can't remember how many times I had to constantly remind buyers not to spend, not to open new credit cards, and to continue making payments even though some balances were going to be paid off at closing. 

Kathy Fey

Fey & Associates - virtual real estate assistance

www.feyandassociates.com

Sep 06, 2008 12:17 AM
David Garcia
Bellevue, WA

Richard -- "I had a client change his credit score for the bad, by paying off an old collection and it hit his score for 40 points because it made the collection current." --

Yes, this is another misconception. Many think that paying off a collection will help them, and although it is good to want to pay off legitamate debts, you want to be very careful on the timing of such payments when you are applying for a mortgage. It is always best to consult with your Mortgage Consultant before making any financial moves such as this one.

Sep 07, 2008 04:14 PM
Patrick Randles
Nova Home Loans - Tucson, AZ

This is a good and valid post. All buyers need to be made aware of these things. I had a client recently who needed to close on his house in order to buy the new one. He paid off the 2nd and 3rd mortgages on the existing house using 2 new credit cards and their 0% offer. Why, you ask? They wanted to keep their cash free for the down payment on the new house. OK. Obviously, he thought this wouldn't be caught. So not only are our ratios messed up now, we have to amend his credit report to reflect the new debts and the minimum payments. What a pain...

Sep 08, 2008 02:59 AM
Jennifer Hartwick
Crane and Crane Real Estate - Columbia, MO

Buyer for the last personal home I sold purchased a new Motorhome weeks before closing which cost more than the house!  That screwed up that deal!

Sep 08, 2008 04:02 PM
Mark Hall
Realty One Group Cascadia - Vancouver, WA
Homes for Sale Vancouver Washington

I have seen this happen time after time in my office. I dodged a bullet last fall when a young couple I was working with bought a new truck about 10 days before closing on their first home. Lucky for them (and me) their dad came through by paying off the truck in full and letting them repay the debt under the table. Only closed 7 days late!

mark hall vancouver wa real estate

Sep 08, 2008 04:22 PM
Anonymous
Ryan

My wife and I are about to close on a house.  Before we found the house, I put in my two weeks notice at work.  Our offer was accepted and we are now going through the process of trying to find the best mortgage.  However, since I won't be employed at closing, what should we do?  Should we try to apply for the mortgage under my wife only?  She has a decent job and makes decent money, but we also have $130,000 in student loans.  What should we do?

Sep 27, 2008 11:53 PM
#9
David Garcia
Bellevue, WA

Hi Ryan:

The answer to your question would depend on a number of factors. For example, if your wife has sufficient income to qualify on her own, then that might be an option for both of you. How about your situation? Have you found new employment yet? Do you have a job offer?

Regarding the student loans, what the bank generally evaluates is your monthly debt obligations compared to your total monthly income. Therefore, I would need to know where you are in that respect to give you an idea of what options you would have available.

There might be more stratagies available, but without knowing more about your situation, I can only offer some general ideas. If you wish, I could help you further.

Please feel free to contact me by phone at 425-974-7269 or via e-mail:  David AT D HYPHEN Garcia DOT com. You may also click the "E-mail me" link under my photo on my main blog page. You may go there now by clicking HERE.

Sep 28, 2008 02:30 AM
Antonio M. Cardenas Broker Associate
RE eBroker Group - San Leandro, CA. - San Leandro, CA
"The Realtors In Motion"

Thank for the information Dave, it does help when people realize that every move counts when you are into escrow. Your points are very valid and I hope that all buyers out there will get to see that list.

 

 

 

Sep 29, 2008 03:17 PM
Antonio M. Cardenas Broker Associate
RE eBroker Group - San Leandro, CA. - San Leandro, CA
"The Realtors In Motion"

Thank for the information Dave, it does help when people realize that every move counts when you are into escrow. Your points are very valid and I hope that all buyers out there will get to see that list.

 

 

 

Sep 29, 2008 03:17 PM
Antonio M. Cardenas Broker Associate
RE eBroker Group - San Leandro, CA. - San Leandro, CA
"The Realtors In Motion"

Thank for the information Dave, it does help when people realize that every move counts when you are into escrow. Your points are very valid and I hope that all buyers out there will get to see that list.

 

 

 

Sep 29, 2008 03:18 PM