No one wants to have a bad experience buying a home, but it's no secret that mortgages can get, well, a little tricky at times. Like when it's time for the loan closing.
At Point Equity, we've spent a lot of time helping our clients navigate around some deep potholes in their mortgage journey. Finally, we realized the same issues kept popping up toward the end of the process.
That was a lightbulb moment for all of us. And we decided to list - and explain - the most common closing issues in this article. And this isn't the standard closing checklist you might find on Google.
Nope - this is the ultimate checklist to help you own the closing. You've got this. And we've got you.
Do These Things From the Start
Ok, no one likes documentation, but it's the very lifeblood of a mortgage. For that reason, try to get past any mental blocks and embrace the paper. The loan officer will start by giving you a standard list of items required when you apply for a mortgage.
So here's our tip: Each piece of paper you supply to your loan officer - keep a copy for yourself. Paystubs, W-2's, tax returns, bank statements - whatever it is, give one and keep one. As you go through the loan process, repeat this for every document requested.
Keep your copies together. You can go old school with an oversized manila envelope or create an electronic folder and upload everything there. Just make sure your electronic documents are always accessible.
Jk. But not really. What we mean here is specifically two things:
- Don't quit your job, and
- Don't open any new credit accounts. Of any kind. Period.
These may seem like obvious things you don't need to worry about, but we have a million stories. And every situation has a logical, extenuating circumstance.
Let's say you've been considering a job change, and the absolute dream job pops up on your radar. You jump at the opportunity because, of course, time is of the essence. The last thing on your mind is your mortgage.
While you CAN change jobs without disqualifying yourself from getting a mortgage, understand that it adds several steps and potential setbacks to loan approval. Communicate any possible job change to your loan officer and discuss how it may impact the mortgage process.
But as far as opening credit accounts - don't do it. Ok - one story to illustrate this one. The one where a client was a week away from closing on their home and decided to go furniture shopping:
They bought a lot of furniture with zero interest or payments for six months! A great deal! The problem was the lender a) found out about the new debt, and b) calculated a monthly payment for the furniture and recalculated their qualifying ratios. The loan fell apart a week before closing.
Zero-interest/no payments are very tempting. Best not to go shopping for anything until after the loan closes. Trust us; we have soooo many stories.
Follow the Money
You may be surprised at the minute focus lenders will have on your money. On how you got your money, which accounts you keep it in (savings, investment, retirement), and where you move it to as you go through the loan process. It's a big deal.
If you could pay hyper-attention to just one thing in the mortgage process - this is the one.
From the beginning, lenders will ask how much money you have for your down payment and require documentation to prove the amount. They'll want to know where the funds originated. Did you save them? Were they a gift or inheritance? A bonus? The lottery?
In fact, lenders would be thrilled if your money had a tracking device on it - at all times.
So be prepared with documentation. If you received a bonus recently, document where the money came from (your employer) before you deposited it. If you have funds in different accounts, set up a plan with your loan officer for how those funds will flow to the escrow account.
Will you leave it in different accounts until closing? Or will you be transferring funds to consolidate it all in one account? If you're receiving a gift of money for your down payment, those funds require documentation as well.
The next critical step is getting your funds into the escrow account for your down payment and closing costs. Again, work with your loan officer to set up the logistics and determine what documentation will be required long before you need the money. Pay attention to timing.
Timing of funds can derail even the smoothest of loan closings. It depends on where your money is held. If you're liquidating investments or taking funds from retirement accounts, learn the standard turnaround time for accessing funds.
What Can Fall Through the Cracks
Now that we've talked about the big stuff - specifically the money - let's focus on the little things we see routinely fall through the cracks. There are three of them: homeowners insurance, moving dates, and unexpected expenses.
Once you have written loan approval, it's safe to plan on actually moving into your future home. There are still plenty of loan hurdles left, but one thing you need to do now is shop for your homeowner's insurance.
Once you decide on the insurance provider, go ahead and execute. The premium bill is sent to escrow and paid along with the other closing costs, so give the insurance agent your Escrow Officer's contact information. Please provide them with the loan officer's contact information as well, as the lender will review your coverage for the final approval process.
Closing dates can be fickle and fluid. So trying to dial out the logistics of sellers moving out, getting out of a rental, and moving into your new home will be difficult at best. And there's a good chance not one single thing will go as planned.
Our best advice is this:
- Find out when the sellers plan to move out.
- Plan on paying rent for a couple of weeks post-closing, if possible.
- Start arranging for your move-in after the loan is closed.
This advice is so important. Delays and last-minute issues are common occurrences for mortgage closings. Expect them, and be thankful you have a great team of loan professionals working on your behalf. They've got this.
Don't put yourself in a situation where you're simultaneously waiting for a moving truck to pick up your furniture, doing the final walkthrough with your old landlord, and rushing to escrow for an unexpectedly delayed loan closing.
It's hard to say if you'll run into this issue and, if you do, how much to expect. So budget in a money cushion that's easily accessible and won't interfere with funds for your down payment.
These may all sound like little things, but everyone at Point Equity has stepped in to avert more than one closing disaster. If we'd only thought to get this information into our client's hands sooner to help prevent these issues from derailing yet another loan closing.
The good news is - now we have, and we know you "ll benefit!