9 tips to help you avoid a complicated closing
While Movement Mortgage has really reduced the time it takes to close on even the most straightforward of home loans, each situation is unique and there can still be hurdles.
These 9 tips offer insight for avoiding pitfalls between application and closing, so you can help make your loan process as quick and easy as possible!
1 - Avoid Making Large Deposits
Steer clear of depositing large sums into your bank account, especially if they're unrelated to your regular paycheck. Mortgage companies are obligated by federal law to investigate significant deposits, which means any unusual inflow of funds may require a written explanation. This added scrutiny can take time and potentially delay the closing.
To keep your home loan journey uncomplicated and stress-free, avoid making large deposits that could trigger further inquiries and documentation requests — stick to your regular paycheck deposits to maintain a smooth closing.
2 - Avoid Taking Salary Advances
Taking an advance on your paycheck can impact your debt-to-income ratio, disrupt your payment schedule and create uncertainties about your income. Lenders carefully evaluate your financial stability and ability to meet monthly payment obligations; any irregularities in your income can raise concerns.
If you need a little extra money to help you through the home-buying process, consider getting gift funds. Acceptable gift donors include your parents, grandparents, siblings, spouses, domestic partners, fiancés and, in some cases, anyone you have a clearly defined and long-standing personal relationship with. FHA loans go a step further and allow gift funds from employers, labor unions or charitable organizations.
3 - Avoid Job Jumping
Not only do lenders look at your current income when deciding if you're ready for a mortgage, but they also look at your income stability and your job history. Switching jobs may raise a few eyebrows as you're suddenly adding probation periods or fluctuating income to the mix, which can complicate the loan approval process.
That said, changing jobs within the same company or industry and sticking with what you know might be better than switching to a different career. But remember, it's still a good idea to let your lender know about any potential job changes to keep things clear and avoid any surprises along the way. So, if at all possible, avoid making job changes until after your home loan is successfully closed.
4 - Avoid Inconsistent Credit
Refrain from opening or closing credit lines during the home loan process. Opening new credit cards triggers hard inquiries on your credit report, which can hurt your credit score. In fact, don't even apply for new credit, even if a tempting offer is attached, like 10% off your first purchase. It's just not worth it.
Similarly, closing credit lines might increase your credit utilization ratio — the amount of available credit you use from what you have available — and make your score drop. That's bad news because it could change your interest rate or even screw your chances of getting approved for the loan. To avoid any complications, it's best to hold off on any credit-related changes until after you have the keys to your new house in the palm of your hands.
5 - Avoid Changing Banks
People may switch bank accounts for various reasons. Some common motivations include seeking better banking services, reducing fees, finding higher interest rates, relocating to a new area, experiencing poor customer service or aligning with personal preferences. However, it's important to carefully consider the implications of switching banks, particularly during the home loan process.
Underwriters rely on consistent financial documentation, and switching banks means providing updated statements and records that may need additional verification. Keeping your existing bank accounts intact throughout the home loan process can help streamline the underwriting process and ensure a seamless closing experience.
6 - Avoid Blowing Off Hard Questions
During the home loan process, the lender may ask questions and seek clarifications regarding your employment history, income verification, assets, down payment source, credit history and outstanding debts. It's important to answer these questions quickly when going through the home loan process. Taking too long to respond can slow everything down. It can even put the loan approval at risk.
To keep things on track, tackle those questions as soon as they come up. It's best to anticipate what might be asked ahead of time so you're ready to respond fast!
7 - Avoid Missing Bill Payments
Late bill payments can significantly harm your credit score and, depending on your credit history, could drop your score by 100 points or more. That can result in higher interest rates for your home loan, which, in turn, can lead to a monthly mortgage payment that's too high for your budget. And even if you could squeeze out a higher monthly payment, that could equate to paying out thousands extra over the term of the loan.
Recovering from such a hit takes time, making it a risk you don't want to take. Instead, make it a priority to keep up with your payments and safeguard your credit score by making automated payments so you never forget. Your bank probably already has a way to handle this!
8 - Avoid Borrowing More Money
Avoid signing or co-signing any loans before closing on your mortgage. Taking on more financial obligations can seriously alter your debt-to-income ratio and possibly disqualify you from the loan. Even if you cosign for someone else, you're stuck with the responsibility of their loan payments, making your financial situation even muddier.
Your underwriter will need to rerun your numbers and require additional documentation, which will likely delay the closing. It may even scare off the seller, who could have a quicker sale with a more buttoned-up buyer. In the worst-case scenario, this new loan could throw off your debt-to-income ratio so much that you no longer meet the requirements for this or any home loan. So, steer clear of any new loan commitments until after closing!
9 - Avoid Big-ticket Purchases
One important tip to ensure a smooth home loan closing is to hold off on making big purchases. Buying things like a new car or a vacation can mess with your debt-to-income ratio, deplete the money you've saved for a down payment, stall your pre-approval or delay your loan closing altogether.
It's best to wait until after closing: that way, you can review your budget and then make any big purchases you can comfortably afford. This will show that you're financially stable and increase the chances of a hassle-free loan closing process.
You're almost there!
While getting to closing sounds complex, we make the process simple and straightforward.
We'll happily help you through the mortgage process and get you closer to becoming a homeowner! Just contact a local Movement loan officer to get started.