What Not to Do Before Closing on a House

The period between mortgage loan approval and closing on a house is a phase where financial or personal actions can impact the transaction. Lenders verify financial information throughout this process, often re-checking details until the closing date. This ensures the borrower’s financial stability and ability to repay the loan remain consistent with the initial application. Maintaining a stable financial profile and avoiding major life changes is important for a successful home purchase.

Avoid Major Financial Transactions

Taking on new credit or making large purchases before closing can jeopardize your mortgage approval. Applying for new credit, such as a credit card or an auto loan, triggers a hard inquiry on your credit report, which can lower your credit score. Opening new credit accounts increases your total debt obligations and alters your debt-to-income (DTI) ratio. Lenders look for a DTI ratio below a certain threshold, such as 43% for conventional loans. A higher DTI indicates a greater portion of your income is allocated to debt payments, which can signal increased risk to lenders and lead to loan denial or less favorable terms.

Making large purchases, even if not involving new credit, can also cause issues. Buying expensive items like furniture or appliances, especially on credit, can increase your debt or deplete cash reserves for closing costs or down payments. Lenders require verification of funds and will scrutinize large withdrawals or deposits. Closing existing credit accounts, while seemingly responsible, can negatively impact your credit utilization ratio and the average age of your credit history. Maintaining open accounts with low balances benefits your score more than closing them.

Co-signing a loan for someone else also carries risk. When you co-sign, that debt becomes part of your financial obligation, directly impacting your DTI ratio even if you are not making the payments. This added debt can reduce your borrowing capacity and make it harder to qualify for your own mortgage. Paying off significant debts without consulting your lender can raise questions about the source of the funds, potentially delaying the closing process as the lender seeks to verify the transaction.

Maintain Stable Employment and Income

Lenders perform employment and income verifications not just at the initial application stage, but also shortly before closing. Changing jobs during this period can create complications, particularly if the new position involves a probationary period, a different pay structure, or a shift in industry. A probationary period, lasting three to six months, means employment is not yet permanent. Lenders prefer to see stable, verifiable income to ensure your ability to make consistent mortgage payments.

A change from a salaried position to one based on commission or self-employment can also cause issues. Lenders require a longer history of earnings for variable income sources to establish consistency. Quitting your job or taking an extended leave of absence removes your primary source of income, making it impossible to meet the lender’s repayment expectations. Starting a new business venture also falls into this category, as self-employment income requires at least two years of verifiable tax returns for mortgage qualification.

Be Cautious with Bank Accounts

Lenders require a clear “paper trail” for all funds used in the home purchase, including down payment and closing costs. Large, untraceable cash deposits are a red flag, as they raise concerns about the source of funds and potential money laundering. Any deposit not clearly originating from a verifiable source, such as payroll or a documented gift, will require explanation and documentation from the lender.

Transferring large sums of money between different bank accounts without proper documentation can also lead to delays. While internal transfers are common, the lender needs to trace the funds’ movement to ensure their legitimacy and seasoning. Funds need to be “seasoned,” meaning they have been in your account for at least 60 days, to prove they are genuinely yours and not a recent loan. Changing bank accounts altogether between pre-approval and closing can necessitate re-verification of all financial assets, potentially delaying your closing until the new accounts meet the seasoning requirements.

Prevent Administrative and Logistical Issues

Timely communication and adherence to deadlines are important for a smooth closing process. Changing your mailing address during the transaction can lead to documents being misdirected or delayed. Loan documents, disclosures, and other communications are sent to the address on file, and any changes can create logistical hurdles. It is advisable to keep your address consistent until after closing is complete.

Neglecting lender requests for additional documents can also cause delays. Lenders may ask for updated pay stubs, bank statements, or explanations for financial activity. Promptly submitting these requested materials ensures the underwriting process continues without interruption. Delays in providing documentation can push back the closing date, incurring additional costs or even risking the entire transaction. Ignoring pre-closing deadlines, such as those for the final walkthrough or signing disclosures, can create last-minute complications. The final walkthrough, conducted within a few days of closing, is your last opportunity to ensure the property is in the agreed-upon condition and that any agreed-upon repairs have been completed. Missing this or other steps can lead to unforeseen issues after the property has officially transferred ownership.