What Not to Do When Closing on a House

Closing on a new home is an exciting milestone, but certain actions can jeopardize the transaction. Understanding potential missteps is crucial for a smooth transition to homeownership. This guide highlights common pitfalls to avoid during this critical final phase.

Avoid Financial Changes

Maintaining financial stability between loan approval and closing is important. Lenders continually assess your financial health; significant changes can lead to re-evaluation or denial of your mortgage. Avoid applying for new lines of credit, as hard inquiries on your credit report can temporarily lower your score. Opening new credit increases your total available credit, impacting your debt-to-income (DTI) ratio.

Making large purchases on credit, such as a new car or appliances, can impact your financial standing. These purchases inflate your debt-to-income ratio, which compares monthly debt payments to gross monthly income. Lenders prefer a DTI ratio below 36%, though some accept up to 43%. An increased DTI ratio signals higher risk, potentially affecting loan qualification or interest rates.

Changes in employment can disrupt the mortgage process. Lenders typically verify employment and income again shortly before closing, often within 10 days of the scheduled date. A change in jobs, a career shift, or quitting employment complicates this verification, raising concerns about income stability and potentially delaying or canceling the loan.

Depositing large sums of cash without clear documentation can raise red flags for lenders. Funds for a down payment or closing costs generally need to be “seasoned,” meaning they have been in your account for at least 60 days. Lenders verify the source of funds to comply with anti-money laundering regulations and ensure the money is not a new loan impacting your debt-to-income ratio. Undocumented cash, gifts without proper gift letters, or unverified loans are unacceptable.

Closing existing credit accounts can negatively affect your credit score. Closing an account reduces your overall available credit, increasing your credit utilization ratio. Lenders prefer a credit utilization ratio below 30%. Closing older accounts also shortens your average credit history, making you appear less established.

Maintain Lender Communication

Ignoring lender requests for documents or information can impede the closing process. Lenders often require updated financial statements, pay stubs, or explanations for transactions to finalize your loan. Delays can postpone your closing date or jeopardize loan approval.

Transparency with your lender about any financial changes or issues is important. Communicate even minor alterations to your income, employment, or debt promptly. Addressing problems early allows the lender to find solutions, rather than discovering issues during a last-minute re-verification.

Assuming your loan is progressing smoothly without active engagement can lead to unwelcome surprises. Proactively follow up on your loan status and ask questions if any part of the process is unclear. Staying informed and responsive ensures you are aware of requirements or hurdles before closing.

Conduct the Final Walkthrough

Skipping the final walkthrough can have lasting consequences. This inspection is your last opportunity to confirm the home is in the condition agreed upon in the purchase agreement before legal ownership transfers. It ensures negotiated repairs are completed satisfactorily.

During the walkthrough, scrutinize details. Verify that all appliances and systems included in the sale are in working order. Check for any new damage since your previous visit, such as leaks, broken windows, or signs of pest activity. Confirm all fixtures and personal property included in the sale are still present.

If issues are discovered during this final inspection, raise concerns immediately. Document problems with photographs and notify your real estate agent to address them with the seller before closing. This walkthrough verifies the property is in the agreed-upon condition, ensuring you take possession as expected.

Prepare for Closing Day

Preparing for closing day involves gathering specific documents and understanding financial procedures. Bring a valid government-issued photo identification, like a driver’s license or passport, for identity verification. Certified funds, like a cashier’s check or wire transfer, are required for your down payment, closing costs, and prepaid expenses. Ensure you have proof of homeowners insurance, as lenders require this coverage at closing.

Review all closing documents carefully and avoid rushing through the signing process. The Closing Disclosure (CD), a five-page form detailing the final terms and costs of your mortgage loan, must be provided by your lender at least three business days before closing. This review period allows you to compare final terms to the initial Loan Estimate and identify discrepancies before signing.

Handle the transfer of closing funds correctly to prevent fraud. Wire fraud schemes are prevalent, where criminals impersonate real estate agents or title company representatives to trick homebuyers into wiring funds to fraudulent accounts. Always verify wire instructions verbally with your title company or lender using a trusted phone number, not one provided in an email or text message. Finally, ensure you receive copies of all signed documents for your records before leaving the closing table.