When you’re about to close on a home, you’re on the last few stages before you can finally pack up and move into the house you’ve spent months or even years trying to buy. However, just because you’re about to close doesn’t mean you’re out of the woods just yet. The mortgage lender may make last-minute checks on your finances, and if they see something off, you could get denied and have to start all over again.
With that in mind, here are the worst financial mistakes that you can make when you’re closing on a home, and the best ways to avoid them:
1. Making big purchases
When applying for a home loan or mortgage you should hold off on making any large purchases until the entire process is completed, including closing. Mortgage lenders don’t like it when borrowers make big purchases, especially before the application process is complete, because this makes you appear riskier as a borrower. And unless the large purchase is insignificant to your income, you may get denied last-minute because of that brand new car or that two-week trip to Europe.
Even if the big expense is for the house, such as a new TV or a jacuzzi, hold off on the purchase until after closing unless, of course, if you can pay for it in cash. But even then, you may want to wait until you’ve moved into your new house before you make any large purchases. In this way, you are better prepared for any unexpected expenses that may come your way after you get settled.
2. Moving your money around
Refrain from moving your money from one place to another unless it is absolutely necessary. All large deposits must be documented from an acceptable source, and every transfer you make must have a good paper trail. While moving money around is generally acceptable, it will be less of a hassle for you to just keep your money in place until closing is over.
3. Applying for a new credit card
As we’ve said before, lenders will likely perform another check on your credit hours or days before closing. If they see that you’ve opened a new credit card, they may see it as increased credit risk, and this could affect your chances of getting approved.
That said, do not apply for a new credit card until the process is done, especially if your credit score is already bordering on the bottom of the qualification bracket set by the lender.
4. Taking out another loan
Obviously, it’s not a wise move to take out another loan while in the process of applying for another one. Similar to opening a new line of credit, you’re also increasing your credit risk by taking out another loan, regardless of how much the loan amount is.
You shouldn’t take out another loan in the first place if your debt-to-income ratio (DTR) is already nearing the ceiling. With another bill on top of all of the other debts you have to pay, you may find yourself in a tight financial spot when you suddenly have trouble paying all of your bills. And even if you get approved for the mortgage, having too much debt can keep your finances teetering on the edge.
5. Switching jobs
Lenders want to see job stability before they consider a borrower’s application; they do this to ensure that you have the capacity to pay them back on time and have a source of income stable enough to do so. In general, lenders require at least two years of employment with the same employer. However, some offer exceptions as long as the new job is in the same line of work.
During closing, one of the worst things you can do is to change jobs. Aside from painting you as a risky borrower, changing jobs means that everything about your employment has to be re-verified. This process involves verifying your employment status, your income, your type of work, among many other factors. Obviously, this could push back finalization for another few weeks or months.
However, changing jobs is sometimes unavoidable. If you must switch to a new job, consult with a loan officer first before putting in your notice. If possible, change jobs as early as you can to avoid disrupting the process when it’s already nearing the end.
Closing is a crucial part of the mortgage application process. And just like any other part of the application, there are a few things you could mess up during closing. That said, avoid these money mistakes during the closing to increase your chances of approval and finalize your home loan as fast as possible.