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You're so close to getting keys to your new home that you can taste it, but the purchase is not a done deal until you sign your closing documents. The mortgage closing process is long and complicated, and mishaps along the way can delay or even completely derail it.
To make sure you stay on track, it's critical to know what not to do when you're in the process of closing on a house. Here are five mistakes to avoid during the escrow period.
1. Opening a New Line of Credit
If you've been preapproved for a mortgage, the lender has taken a look at your finances and believed, at the time you submitted your application, that you were qualified to borrow money. If your situation changes drastically between preapproval and mortgage closing, it's possible the lender won't give final approval for the loan.
When you open a new line of credit (such as a credit card or loan) during the mortgage application process, it can cause lenders to view you as a riskier borrow since you're taking on additional debt. It may cause your lender to delay the process so they can reassess your application.
Furthermore, opening a new credit account can cause a temporary dip in your credit score, both due to the credit inquiry required to secure the card, and because it decreases the average age of your accounts. This could cause the lender to reevaluate your eligibility or even increase your mortgage interest rate.
Avoid applying for any new forms of credit until you close, and instead focus on getting your credit in peak shape for a mortgage.
2. Making a Large Purchase on Your Credit Card
You don't have to open a new credit line for lenders to take notice; increasing your existing debt balances is also risky. Your lender is in the process of deciding whether to trust you with a hefty sum of money, so if you rack up large credit card purchases while in escrow, it could give the lender cold feet about your ability to make timely payments.
That's not to mention that sizable credit card purchases send your credit utilization rate in the wrong direction, which can lower your credit score and put your mortgage terms at risk. Yes, you can use your credit card before your closing date, but do your best to keep your purchases small and pay off your balance swiftly.
In other words: Hold off on purchasing that new furniture, paint or other items in anticipation of your new home until after you've got the keys in hand.
3. Quitting or Changing Your Job
During the underwriting process, lenders verify your income and employment to ensure you have the cash and stability to handle your monthly mortgage payment. If you leave your job while you're in the escrow process, it can delay everything since the lender may need to review new documents and reverify income.
While it's possible changing or leaving jobs won't cause an issue, especially if the change is well-documented and your new income is comparable, it could slow down the process. On the other hand, if you end up with far less income than at the time of your application, the lender may determine you can no longer afford a home at that price and deny the loan's final approval.
4. Ignoring Your Closing Schedule
For your closing to happen as planned, you have to follow a strict schedule for submitting documentation such as pay stubs and bank statements, obtaining an appraisal, applying for home insurance, working with the title company and so on. While your loan officer and real estate agent should help guide you through the process, they might miss something, or you might inadvertently let something fall through the cracks.
Ask the professionals you're working with to provide a checklist with due dates so you know what you have to do and by when. You'll also need to make sure you have your down payment and money for closing costs ready to go (not locked up in accounts that take days to access) so you can pay on time on your closing date.
If you fail to complete all of the tasks in time, you may delay closing, lose out on a lower interest rate or potentially fall out of escrow and have to start the mortgage or homebuying process over again.
5. Forgetting to Pay Bills
The process of buying a home and preparing to move is stressful and might consume a lot of your time and attention. As you chip away at your to-do list, you might forget to keep up with mundane tasks like paying your internet or water bills.
But failing to pay bills on time, or missing payments, is another way to potentially harm your credit score and put your loan closing at risk. If you haven't already, switch your bills to autopay, or note their due dates in your calendar to prevent mistakes that harm your credit before closing on a mortgage.
Keep Your Credit in Check and Avoid Closing Delays
While plenty of factors can lead to problems closing on a mortgage, changes to your finances and credit score can change your plans quickly. To ensure a smooth escrow period and successful closing, consider signing up for free credit monitoring during the homebuying process. You'll see where your credit stands and where you can make improvements to increase your chances of closing on time and without too many hitches.