Banks are getting very cautious about home mortgage loans these days — right up to the closing date. Even consumers with good credit and plenty of cash may find themselves out on the sidewalk if any of these last-minute loan application issues pop up.
To make sure you’re on the right end of a mortgage closing, follow these four pieces of advice:
Avoid any major purchases before closing your mortgage loan. Some homebuyers think that just because they have a mortgage deal all lined up, the deal is done. Not so. Banks have been known to pull mortgages when the homebuyer buys a new car or makes another major purchase. To banks, such purchases suggest more debt for the homebuyer and more risk for the banks. Avoid any big-ticket items until after you’ve signed on the dotted line. That goes for cash deals, too. Banks also check out your cash reserves when they approve a loan.
Don’t make any big career changes. Lenders also weigh your salary and job stability when evaluating home loans. Any career move you make could jeopardize your home mortgage loan. At worst, the bank could pull the loan. At best, it could delay the process until you demonstrate your new job is a stable one that guarantees you’ll have the financial resources to pay off your mortgage debt. That’s especially true if you change industries.
Prepare for a last-minute credit check. This is related to point No. 1, but with a twist. With new rules initiated by Fannie Mae’s loan quality initiative, which went into effect June 1, banks and lenders will likely make a second credit check right before closing. So if you miss any credit-card payments or are late on a mortgage payment between the time you were approved for a mortgage and the actual closing date, you may be putting your new home purchase in jeopardy. Even applying for a new credit card can trigger a credit-score inquiry, which could reduce your credit score and threaten your home loan.
Watch out for closing-cost surprises. Some homeowners put every last penny into the mortgage down payment and don’t leave enough to pay for closing costs. That could be a big mistake. Closing costs can be as much as 3% of the cost of a new home — that’s $6,000 for a $200,000 property. Worse, closing costs are dynamic and can change all the time. If you don’t have cash set aside to pay more for mortgage rate points or on closing fees than you were anticipating, you could lose the home.