The loan is approved and contract signed, the closing date is set, and everything seems on the right track to get that home. Then at closing, it all falls apart. A few common mistakes can easily cost you your dream home!
Avoid these 6 things at all costs to save yourself from hiccups and heartache at your closing:
• Large home-item purchases, like new furniture.It’s tempting to splurge just before you buy a home. You've probably got a long list of big-ticket items to buy, like a washer and dryer, bedding, lawn equipment, etc. And you’ve probably paid down your credit cards and loans, and cleaned up your credit ahead of applying for a mortgage. Of course that store is store offering you a $10,000 line of credit for furniture with no payments for a year! Very tempting, but don't do it. Consider renting furniture for a few months instead. This way you avoid a credit check, and have the ability to take your time and strategize those big-ticket home purchases.
• Buying (or Leasing) a new car. Did you know that during the home-buying process, your credit is monitored, right up to the day you sign the contract? Tom Wind, Executive Vice President of home lending for EverBank in Jacksonville, Fla.says: “When people think they’re approved [they also think] they’re done,” he says. “They’re not done until the loan closes,” he said. I know that shiny new car is calling your name, but do not buy it before closing. Car leases can also trip up potential homebuyers, because the bank treats the lease payments like any other debt payment and the lease includes a hard credit check.
• Racking up charges on your credit cards or opening new credit card accounts. A recent TransUnion study released in May 2016 showed that consumers increase their credit card spending as much as two or three times their previous rate just before they close on a home. Common purchases include improvements on their existing property, new home furnishings, and other preparations for the home-buying process. This is a definite no-no.
• Making undocumented cash deposits (whether large or small) into accounts. In an effort to scrape together cash for closing, many buyers opt to borrow from their 401(k) accounts or withdraw from their IRAs. It is incredibly important to let your lender know you'll be making withdrawals from your IRA to help with the down payment. In addition, any cash deposits, large or small, should have a clear path of origin and associated documentation.
• Receiving undocumented contributions (gift money) from family or friends for closing expenses. You are stepping into the American Dream, and your family is cheering you on! It's great that they want to help; just make sure that all monetary gifts are documented. The best and most reliable way is to have their contributions made in the form of a check.
• Changing jobs. Switching jobs at the last minute can definitely cause hiccups at closing. Even if you leave a job for more money or even the same money, you're taking a bit of a risk. It may be difficult to get pay stubs and other required documentation in time for closing. Wind says. “People think in their mind it doesn’t make a difference if it’s company A or company B or if I make $100,000 here, or $100,000 there, but the difference is we still have to validate all if it,” Wind said. “The risk you’re going to have is we’re going to have to call the old company if we find out you’re not there. It’s going to be an issue,” he said.
Just remember: “Banks are going to question almost any meaningful transaction you make while you’re applying for a mortgage,” says Douglas Boneparth, a financial planner in New York City. “So, until you close and the keys are in your hands, you are under the magnifying glass,” he says.
So there you have it folks. I can't guarantee you'll have a smooth closing, but I can guarantee that you WON'T have a smooth closing if you do any of these 6 things. I wish you all the best in your home buying adventure.
Sincerely,
Eli
Sources: MarketWatch.com;Thestreet.com; Homebuyinginstitute.com
Photo credit: Freepik
