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
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
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
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.
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