Note: This is a chapter in my new ebook called The Ultimate Guide to Buying (and then Selling) Your First Home. I will post a chapter a week. If you like what you read, you can pick up a copy here for the price of a candy bar! Buy a candy bar or be a real estate guru! This chapter outlines ten rules when waiting for closing. Please follow these rules! . The last chapter to be shared on this blog you can find here.
I met Steve and Sally for coffee two days later. I do not like to lecture people from my soapbox, but with what I wanted to tell the young couple, it was a necessary evil. Sally replied that I had not lead them astray yet, so it was fine. Steve grinned and said, “Not yet anyway!” I smiled with them and went into my lecture. “When buying your first home, it can be an exciting time after you have gotten through the negotiations, inspection, repair amendment and appraisal. You are setting on cloud nine knowing that soon you will have a home to call your own. All that is left is to get the final approval for financing. . It is time to go shopping for that new furniture to fill that living room, or get a new bed for the master suite that will look so sweet.” Sally said she had just been thinking that exact thing that morning. She wanted all new furniture for her bedroom and living room. Steve nodded his agreement. I responded. “Well I am glad I talked to you in time to stop these evil thoughts.”
Steve and Sally looked perplexed. I went on. “There is nothing worse you can do than go on a spending spree while you wait those last two weeks before closing on your first home.” I finished by telling them that a shopping spree might add more expenses to their debt load, which could change their approval status. Lenders will check their file one last time before they close to make sure nothing about their situation had changed including their income to debt ratio. They both looked shocked and thanked me. They wanted to know what other rules did they need to follow these last two weeks. I handed them a piece of paper with a set of ten rules for them to follow.
1. Do not charge anything – Credit cards are part of life, but they should not be during the approval stage of buying your first home. It is best to not use them at all during the two to three weeks you are waiting to close on your home. If you do end up having to make some charges, alert your lender immediately with an explanation.
2. Do not change jobs – I am not talking about getting fired here, because if you get fired, it is probably not a good idea to move forward with a large financial commitment like a mortgage. What this rule covers is you changing jobs voluntarily. The job of a lifetime might be on your door stop, but your lenders like stability in their borrowers and changing to a new job brings a lot of unknowns with it. Will you be a good fit for the job? Was the salary more or less than you were paid before? Does this mean you will have to move again soon? If you just can’t pass up on the job of a lifetime, see if the employer is willing to let you start at a future date after the home has been purchased.
3. Do not transfer large sums of money from one account to another – What a nice option for you to have? You have some money in one account and you want to move it over to another account for reasons that do not have to do with the home purchase. Not a good idea. Just wait until the house is yours. If you do have to do this, contact your lender with a full explanation as I am sure they will be asking you if you don’t disclose this move.
4. Do not make a large deposit into your checking account – Large deposits into your checking account raises red flags for underwriters. Why? Once again, Lenders like stability and a clean file with no questions about your motives or intentions. Where did this money come from? Will you need it to pay your bills in the future? They will also question if you are doing this because of some financial difficulty that has arisen. If you are depositing a large sum of money into your checking account, they will question the reason and source of the funds.
5. Do not buy a new car (or any other large financed purchase) – Debt to Income ratios play a critical role in your ability to qualify for a mortgage. A large purchase, like a new car, might push your debt to income ratio beyond what is acceptable to the lender. It is best to just wait to make these large purchases until you are in your new home.
6. Do not close and/or open any credit card accounts? – There is always some interesting advice on the internet about how closing or opening new credit cards can affect your credit score. (http://www.creditcards.com/credit-card-news/help/cancel-credit-card-6000.php). When you are in the finance approval stage of buying your first home, it is best to just leave your credit cards alone. Your preapproval for the mortgage was based on the current number of cards you have in your wallet. Why mess with this? Don’t do it.
7. Do respond to lender requests as quickly as possible – As you know, lenders will ask you for everything dealing with your background. What most first-time buyers don’t realize that lenders will do this until the bitter end of the approval process, sometimes even the night before closing documents are due. It is always best to respond as quickly as possible to the lender so there is no delay in the process.
8. Don’t try to consolidate your debt – When you are in the last stage of getting mortgage approval, you do not need to be worried about consolidating debt. Believe it or not, this too can affect your credit rating. It is great that you want to take this financial responsible step, just don’t take it a week before moving into a home.
9. Do pay off all Tax Liens, judgments and/or collections – If you owe any kind of liens, judgments or collections, you need to get these paid off. Hopefully, you would have done it before this last stage of the process, but if you have not, feel free to get these paid off as they will affect your loan approval as well.
10. Do pay all your bills on time. – Finally, it is the best plan to always pay your bills on time, but it is especially important during this time. A late bill can adversely affect your credit report, which can affect your ability to get a mortgage. Don’t think about it, just pay those bills even if you must skip Starbucks once or twice.
I reminded Steve and Sally that it is always stressful to get a mortgage approved and it lasts until you sign the paperwork at the title company. You can’t do anything during this approval time that will ruin your chances of getting your first home. If you follow these ten rules, you are positioning yourself to have no nasty surprises. In other words, just follow the rules! Steve and Sally thanked me for the ten rules and we discussed the next step: the final walkthrough.