Preventing Your Closing From Being Delayed or Cancelled
In the period of time between writing an offer and getting to the closing table, there are more things that can occur to derail the purchase than you could possibly imagine!
Most buyers think that once they are pre-approved they are good to go and nothing bad can happen. Unfortunately, a pre-approval is not a guarantee that your loan will be approved or close on time. When you have an accepted contract, the lender will create a new application and collect updated documents. Even after this application, the lender will continue to monitor your credit and income. And as closing day approaches they may obtain additional updated financial documents. If there are changes, your closing could be delayed or cancelled.
Lenders are now required to tract “changed circumstances” between application and closing. If anything changes, at the very least, it may delay the closing while the loan goes back through underwriting. The rules are not new but are being enforced more vigorously due to quality loan initiatives.
The following are areas that require special attention by you to help prevent your closing from being delayed or cancelled.
TAX TRANSCRIPTS – The lender might not ask you for your tax returns but after you have an accepted purchase contract, they will request transcripts directly from the IRS. If you have a side business and take a loss, the loss is deducted from your employment income. Or if you take business deductions, the amount deducted is subtracted from your income. This will change your debt to income ratio and may put you outside acceptable numbers. When you are in the pre-approval process, tell your lender about any employment deductions or business loss you take.
BANK STATEMENTS – As the closing date approaches your most current bank statements will be analyzed for several reasons.
1. Lenders are now looking to see if you have bank fees for non-sufficient funds (NSF). Example: If you have more than 1 or 2 isolated NSF incidents over a 60 day period your approval will be downgraded and you may no longer qualify or it may cause a delay while additional paperwork is collected and analyzed. An explanation from you for the NSFs will be part of the review.
2. Lenders are required to analyze all non-payroll deposits. Be prepared to explain and document where every non-payroll deposit came from. If you are unable to supply documentation, your loan may not close or the closing will be delayed while you try to obtain satisfactory documentation.
3. Lenders will check your balance shortly before closing to make sure you have sufficient funds for closings. Sufficient funds might even be more than you will actually need at the closing table, especially if your loan requires that you have reserves. Keep as much money as possible in your checking and savings accounts. Stocking up on supplies for the new home can wait until after closing! And now isn’t the time to pay down or off debt…wait until after the closing.
NEW AUTO LOANS OR CREDIT CARDS – Do not open new debt after the preapproval or application. If you take out new debt, it changes the debt to income ratio. If the ratio of debt payments to income is too high, you could be turned down for a mortgage. Even if you can afford the new debt, when the lender finds out, it is considered a changed circumstance and it will require the loan to be re-underwritten. New debt can also lower your credit score. If it does, it could cancel your approval or cause your interest rate or costs to be higher.
CHARGING UP CREDIT CARDS – Charging up credit cards with thousands of dollars worth of appliances or furniture is another way to sabotage your closing. Lenders use your minimum monthly credit card payment when determining your debt to income ratio. If the minimum payment goes up and the ratio is too high you could be turned down for a mortgage. At the very least, it is considered a changed circumstance and will send your loan back to underwriting. Wait until after the closing before buying furniture, a refrigerator or a lawn mower on credit.
CHANGING JOBS – Changing jobs is another good way to derail a mortgage before closing. Even if you are in the same field and make more money, it could delay the closing because your circumstances changed and the loan will have to be re-underwritten. Other potential deal breakers includes staying with current employer but switching from a salaried position to one where primary income comes from commission or bonuses. And do not quit your job to start your own company!
In short, do nothing that negatively impacts your ability to qualify for your loan or that will initiate a new round of paperwork. The mortgage application process is not based on a single snap shot of your financial life at any given time. It is an on-going process that can take into account everything you do right up until the day of closing.
Senior Loan Officer
Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*
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