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Home closing: Avoid falling at the finish line

Peter WardenThe Mortgage Reports Contributor

In this article:

Just because you have mortgage approval doesn’t mean you can relax. Here are three things to avoid for a smooth home closing:

  1. Changing the source of your down payment
  2. Increasing your credit balances or applying for new credit
  3. Assuming that your final documents are what you expected

Once you have mortgage approval, keep a cool head. Don’t do anything to give your lender second thoughts. And get your final documents in advance so you have time to review them carefully before signing.

Verify your new rate (Sep 24th, 2018)

How likely is your home closing to fail?

It’s a fact that a small percentage of home sales go wrong between the offer being accepted and the actual closing. In 2017, U.S. News & World Report covered a study that explored just how often that happens. It reckoned the number of loans going belly-up was increasing nationwide: to 3.9 percent in 2016 from 2.1 percent in 2015.

Of course, you’d be delighted if you were playing a lottery with a 3.9 percent chance of winning the jackpot. But you’d be a whole lot less happy if your doctor gave you a 3.9 percent chance of dying from a condition she was diagnosing. Odds are … well, odd.

Don’t panic!

Of course, the possibility of your deal crashing becomes smaller the longer the purchase agreement survives. Common causes for such failures include the:

  1. Appraisal falling short
  2. Home inspection uncovering unexpected major issues
  3. Finance falling through
  4. Title search revealing issues
  5. Home proving uninsurable

And, by the time you’re approaching your transaction’s finish line, you’ll have cleared most of those hurdles. But that doesn’t mean there aren’t more opportunities to stumble. So keep your focus.

Expect the going to be tough

However, that’s not as easy as it sounds. Few periods in your life are likely to be more busy or stressful than the last couple of weeks before your home closing.

Even so, you really, really have to reserve some time and headspace for your purchase. One way you can do that is to begin your preparations for the move earlier than most people do.

Related: New house checklist: Things you need that you never imagined

Read on for the things that trip up too many home buyers in the final stages of their home closings.

Don’t mess with your down payment

Now is not the time to change the source of your down payment. Your lender will hate that.

Mortgage lenders have one overwhelming priority: to make sure the applicant is ready, able and willing to make timely payments on the new mortgage. Affordability is a big issue here. And your down payment plays a big part in your lender’s detailed assessment of the sort of borrower you’ll make.

You’ve already told your lender where you’ll be getting the down payment. And you’re almost bound to delay your home closing if you suddenly change your mind at the last minute. Indeed, you might even sink it.

For example, one borrower in Nevada listed “retirement savings” as the source of his down payment, but at the eleventh hour, sold his baseball collection and thought he could just substitute that cash.

This delayed closing by nearly a week, as he had to prove that he had owned the collection, that he sold the collection, and that the buyer paid for the collection. If the seller had possessed a better backup offer, he would have lost the house.

Down payment gifts

If — at the last minute — Grandma or Uncle Moneybags generously offers to give you your down payment, by all means, take the money. Just don’t try using it in the way they intended.

Instead, stick with the funds you’ve already set aside and use your gift for your closing costs or to establish an emergency fund … for anything but your down payment.

Related: Down payment gifts: How To give and receive a cash down payment gift for a home

Of course, if Grandma makes her offer while you’re still hunting for a home, that’s different. Mortgage lenders rarely have a problem with gifts for down payments. But you’ll like have to meet three conditions:

  1. It really is a gift and not a disguised loan
  2. The donor writes a letter confirming it’s a gift
  3. You document your receipt of the money and its source with complete transparency

You’ll have to show that the giver had the funds to give (with a bank statement), that the funds were transferred to the buyer (with a copy of the transaction receipts or statements), and that the funds are a gift and repayment not required (with a letter from the giver).

Don’t touch your plastic or open or close accounts

Many mortgage lenders routinely carry out a last-minute credit check in the days leading up to closing. So make sure your credit score remains as good or better than it was when your loan application was approved. It’s not hard to do that:

  • Keep paying your bills on time
  • Don’t increase your credit or store card balances, even temporarily — You may know you’re going to pay down additional debt at the end of the billing cycle, but the scoring algorithm won’t make that assumption. Use a debit card for purchases
  • Don’t open new credit accounts — Just applying for credit gives your score a small hit
  • Don’t close credit accounts — Part of your score depends on the average age of all your accounts: the older the better. Closing old accounts drag down that average age and so your score

Don’t. Change. Anything. (Unless you’re paying down existing card balances, which should improve your score.)

Read your closing documentation upfront

Mistakes and misunderstandings happen. It’s not rare for errors to creep into documentation prior to a home closing. Occasionally, those errors are serious.

What you don’t want is for those errors to become apparent only on closing day when your pen’s hovering over the contract. Read the documentation you’re sent in advance of closing as soon as it arrives. That way, you may be able to head off problems in time to avoid screwing up your timetable for moving.

Related: Mortgage closing: What happens at your signing

Closing disclosure

The closing disclosure is usually the most important of those documents. This will lay out all the terms of your mortgage. And you need to check every detail.

Closing disclosures aren’t as complicated as they used to be. One-time federal watchdog, the Consumer Financial Protection Bureau, imposed a simplified and standardized form on all lenders. Going through it should now take you minutes rather than hours.

If you spot a material mistake in the document, contact your loan officer or real estate agent right away. The longer they have to resolve your issue, the better your chances of your home closing going ahead on schedule.

The Mortgage Reports has a guide to closing disclosures, which includes sample pages so you’ll know what to expect:

Related: Use your mortgage Closing Disclosure (CD) to get the deal you were promised

Title commitment

Another document you should check pre-closing is your title commitment, also known as a “preliminary title report” or “title binder.” This confirms that your property title is insurable and probably clear. Title insurance protects you in the event somebody later tries to make a claim to your property.

However, your insurance only covers you against unknown issues. Your insurer won’t protect you from any known potential claims in your title commitment.

So make sure your document doesn’t list any possible claims for rights of way, easements or boundary disputes.

Related: What is title insurance, and is it required?

Relax — just not too much

You read earlier that 3.9 percent of residential property transactions fail. That means 96.1 percent succeed. And, by the time the closing table is in sight, your chances are already much better.

Providing you take reasonable care over your down payment, credit and closing documents, you don’t need to lose any sleep over your home closing.

Verify your new rate (Sep 24th, 2018)