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Buying a house is an exciting milestone, but the process can be stressful, especially when it comes to the final hurdle: closing. To ensure a smooth closing, it’s crucial to understand what lenders check before giving you the green light.
This guide will go into the main areas that lenders look into in the final days before closing, so you can make sure that your dream home closes smoothly and without any last-minute problems.
The Big Three: Income, Debt, and Credit Score
1 Income Verification: Lenders want to be sure you can afford your new mortgage payment. They’ll verify your income by requesting pay stubs, tax returns, and W-2s If you’re self-employed, you’ll need to provide additional documentation like business tax returns and profit-and-loss statements.
2. Debt-to-Income Ratio (DTI): This ratio measures how much of your monthly income goes towards debt payments. Lenders typically have maximum DTI limits, so any new debt you take on before closing could jeopardize your approval.
3. Credit Score: Your credit score is a snapshot of your financial health. Lenders use it to assess your ability to repay the loan. Any significant changes to your credit score, such as opening new credit lines or missing payments, could impact your loan terms or even disqualify you.
Avoiding Pre-Closing Pitfalls
1, Major Purchases: Hold off on buying big-ticket items like furniture or appliances until after closing, These purchases can lower your credit score and impact your DTI,
2. New Credit Lines: Don’t open new credit cards or loans before closing. This can also negatively affect your credit score and DTI.
3. Job Changes: If possible, avoid changing jobs before closing. Lenders look for stability in your employment history.
4. Missed Payments: To keep your credit history positive, pay all of your bills on time. Even a single late payment can hurt your score.
5. Disrupting the Timeline: Stick to the agreed-upon closing timeline. If there are any delays, you risk losing your fixed interest rate or having to start the application process over.
What to Expect Before Closing
1. Closing Disclosure: This document, which details the loan terms, fees, and closing costs, will be sent to you three days prior to closing.
2. Conduct a last inspection to make sure the property is in good shape and that any agreed-upon repairs have been completed.
3. Closing Day: You’ll sign all the necessary paperwork, finalize the loan, and receive the keys to your new home.
Frequently Asked Questions
1. What happens if my credit score changes before closing?
If your credit score drops significantly, it could impact your loan terms or even disqualify you. Contact your lender immediately if you experience any changes to your credit score.
2. Can I use my credit card before closing?
You can use your credit card for small purchases, but avoid large balances or opening new accounts.
3. How can I prepare for closing?
Gather all your financial documents, review your credit report for errors, and get preapproved for a mortgage.
4. What should I bring to closing?
Bring a government-issued ID, proof of homeowner’s insurance, and a cashier’s check for closing costs.
5. What happens after closing?
Start making your mortgage payments on time and enjoy your new home!
Additional Resources
- Readynest: What to Expect the Week Before Closing on a House
- Bankrate: What Not To Do When Closing On Your Mortgage
By understanding what lenders check before closing and taking steps to avoid common pitfalls, you can ensure a smooth and successful closing experience. Remember, communication with your lender is key throughout the process. Don’t hesitate to ask questions and clarify any concerns you may have.
Now, go forth and conquer your closing!
6 common mistakes that prevent closing on a mortgage
You may have heard that if you’re going to close on a house, you should set spending limits and refrain from purchasing pricey things. However, during the underwriting process, what constitutes a big purchase? Buying a new car or boat would undoubtedly cause lenders to raise red flags. Delaying purchases of furniture, appliances, or anything else you might have to pay for in installments is advised until after your mortgage is finalized.
These transactions may reduce your credit score, which may have an effect on your loan amount and interest rate based on your credit history and score. This might mean paying a higher down payment or paying an interest rate that is higher for the next 15 or 30 years.
In summary, Patricia Martinez-Alvidrez, business development officer for Stewart Title in El Paso, Texas, advises delaying the purchase of a large item since “this can ruin their chances of staying qualified for a loan.” Mortgage How soon after closing can I buy furniture? Once you’ve gone through all the.
Switching or quitting your job
Another major mistake to make when you’re about to close on a home purchase is changing jobs. This is because mortgage lenders examine your employment history for consistency. Plus, providing extra employment documentation to a lender can delay the closing. Additionally, bear in mind that you may need to take additional steps to provide your lender with proof of employment if you’re receiving a mortgage while on maternity leave.
If you have any control over your job situation, it’s best to stay put until after you close. It may take a few weeks for a borrower who quit their job to be able to try to close again.