Home Closing Mistakes That Cost Final Loan Approval
Home closing mistakes that cost final approval are real and these unwitting blunders surprise would-be home buyers more often than you might think. After all, you took the time to order and go through all your three credit reports, successfully disputing all the errors; made it through the long house hunt; the purchase offer is accepted by the seller; and, the closing date is set. Unfortunately, you're not across the home buying finishing line yet and if you commit just one of a few mistakes, you'll be disappointed with a loan denial.
Home Closing Mistakes that Cost Final Loan Approval
The majority of missteps taken by mortgage borrowers are financial but all are completely avoidable. Lenders often run a second, soft credit check just before closing occurs to ensure the borrower's finances and professional situations have not changed since mortgage pre-approval. That's why it's referred to as "final loan approval," because that's precisely what it is and it's done to avoid risk. Though home loan institutions lend money, these entities do what they can to minimize chance of default.
Obtaining a new mortgage is often a lengthy process. It begins with your initial application and continues until you close on the loan, which may take place several weeks or even months later. In many cases, the lender doesn't formally approve the mortgage until a few days before closing occurs, and it is possible to receive a last-minute denial. --Zacks.com
When you go through the home buying process, you do so to find the best property that fits most of your wants and needs. Ahead of the search, you pay down or payoff credit card debt, payoff the balance on an auto loan, save for a down payment and for inspections, the earnest money deposit and closing costs. In other words, you've done everything right. But too many home buyers don't stop to consider just because there's been a pre-approval, there won't necessarily be a final approval. In fact, a study conducted by credit reporting agency TransUnion revealed would-be borrowers increased their credit card spending by two to three times before settlement day. The sad reality is all-too-many buyers act on the urge to splurge at a very inopportune time. Here are the most committed home closing mistakes that cost final loan approval by borrowers:
- Increasing credit card balances. If you have low credit card balances, that's a good thing and something that should not change between the time you are pre-approved for a home loan and closing day. Increasing credit card balances necessarily adds debt to your obligations and that throws-off your DTI or debt-to-income ratio. Part of pre-approval and final approval is based on consumer debt and the more, the worse.
- Opening new credit card accounts. It's quite tempting to purchase new furniture for your new home but it's also very risky because it could cause your mortgage loan to be denied at the last-minute. Even if you don't spend much against the credit limit, what's left might be considered potential debt, something else lenders do not like. It's best to avoid opening any new credit card accounts and if you're doing so for a reason, wait until after closing.
- Financing a vehicle. Whether you take out an auto loan or lease a vehicle, this will likely cause the lender to deny your mortgage. It's simply too large of debt to incur and will have a big, negative affect on your DTI. Again, wait until after settlement day to purchase a car; after all, would you rather have a vehicle or a new home? You'll probably choose the latter over the former, so don't give into the temptation.
- Changing jobs or worse, changing careers. This is a huge no-no because it's a very big reason why you received pre-approval in the first place. Your long employment history is a big plus to lenders and this is why most debt instrument requirements include a specific amount of time to be with your current employer. Even if you change jobs for more money, it can throw the documentation timeline off. And, if you change careers, it's a big red flag to lenders.
- Spending part or most of their cash reserves. When you apply for a mortgage, lenders will check your cash reserves. If that amount greatly varies before closing because you've made purchases with said cash, it could be a very costly mistake on your part. Leave your cash alone, at least until closing and be sure to communicate with your lender until you get through settlement.
Another huge blunder is to use credit card cash advances rather than dipping into retirement savings. If money is tight and you don't have the funds to cover closing costs, do not obtain credit card cash advances because it increases your amount of debt and will come with a hefty interest rate.