There aren’t many things in life — other than a wedding day or the birth of a child — that can compare with the feeling you get when you close on a house, get handed the new keys and are finally a homeowner.
On the other hand, the process of closing on your home loan can also be one of the most nerve-wracking experiences ever. Who thought up this cruel process, anyway?
Why is it nerve-wracking? Because before you get to grab the keys of your new home, there’s plenty that can go wrong — from common trip-ups to uncommon surprises. This blog looks at some of the things that can go horribly wrong and what to do to rectify the issues. Even better, we have tips on how to avoid these problems in the first place.
Let’s look at what can go wrong at closing.
Since you applied for a mortgage, your credit tanked
Sidestep this scenario by limiting spending, applying for other loans, or being late on credit card payments. Just because you’ve been approved for a mortgage and your purchase is under contract doesn’t mean you’re home-free! Any of these missteps can seriously impact your credit history, and you better be sure that your mortgage lenders will take another look at your credit rating right before closing. Having a different credit score could negate the loan altogether or move you to another (higher) interest rate. Depending on your loan, that could increase your monthly mortgage for up to 30 years!
You lost your income or switched jobs
The first bit of advice any mortgage broker will tell you is that you have to be employed to get a home loan. But it goes further than that. You also should have some history with your employer so that they can vouch for the stability of your job. If you switch jobs prior to closing, let your loan officer know immediately. Even if you’re climbing the corporate ladder and this new job pays more than the last, declare it so that it doesn’t become a stumbling block at closing.
If you don’t have a new gig by the time it’s ready to close, you might be able to get a parent or family member to cosign your loan, but your broker will need to count that person’s income toward your purchase. Worst case scenario: you don’t disclose your unemployment. That could end up in a case of mortgage fraud, and nobody wants that. Be honest and forthright, and don’t hesitate to talk to your loan officer about what your options are.
The closing disclosure presents a problem
The sale of your home sees a ton of little details coming together by closing. But not everything goes smoothly. Many settlement delays come from buyer financing issues that crop up at the last minute. The biggest culprit is the closing disclosure which, by law, must be in the buyer’s hands at least three days before closing. The closing disclosure is a five-page doc that describes, in detail, the critical aspects of your mortgage loan, including purchase price, loan fees, interest rate, estimated real estate taxes and insurance, closing costs and other expenses. It’s one of the most important pieces of paperwork you’ll receive, so check it over carefully, preferably with our loan officer. Alert your real estate agent immediately if you disagree with anything in the document.
Typos in the buyer or seller names
You’d think that this would be a no-brainer. It’s the easiest thing to catch and fix before closing day, but you’d be surprised at how many times a simple typo or mismatched name can gum up the works when it comes to purchasing a home. To avoid this seemingly trivial (but not at all trivial) error, examine every bit of loan document paperwork in advance and go through them multiple times. Wherever your name appears, make sure it matches your legal name to the letter — first, middle and last — all spelled correctly and consistently across all documents. Don’t let this mess up your big day!
Your down payment and closing costs
You’ve saved up for your down payment and cash to close, and the funds are just sitting there waiting for this momentous day. Unfortunately, your bank’s internal processes might slow down the transfer of such a large sum. And writing a personal check will get you nowhere.
To avoid this embarrassing problem, plan on submitting your down payment in the form of a certified or cashier’s check only. You can also arrange to wire funds before closing. Remember that closing costs will include a lot of small fees. These include application fees, appraisal fees, mortgage insurance, title insurance and attorney fees. Your title company or lender will know the total amount days before closing, so don’t hesitate to ask them. And if you send a little more than the required amount, not to worry, it’ll be refunded.
There’s an insurance snag
Insurance is a tricky thing. The best way to get around insurance snags is to get in front of them ASAP. Once a contract is written, get quotes on insurance immediately.
When the contract is drawn up, you should also get a document outlining whether the property is located in a natural hazard area. If the home is in a high-risk area, your lender may require you to purchase hazard insurance above and beyond your homeowner’s insurance. It’s essential to determine what type of extra insurance you may have to buy and how much it may cost before making an offer on a house. Once you get a contract, get a home inspection and call the insurance company before you do anything else. And remember, lenders will require you to maintain homeowner’s insurance until you pay off the mortgage.
Additionally, if there are insurance claims on the home, such as water damage or mold, getting it insured may be difficult if insurance firms feel the home is too risky. Start investigating this early; you don’t want to be caught off guard with bad news about insurance that derails the entire closing process. But then again, you don’t want to be stuck with a home that is an insurance nightmare either.
Ready to move forward?
Closing on a house is a considerable undertaking, but you can avoid common roadblocks and pitfalls if you know what to expect. The secret is to be prepared. As always, enlisting the help of an experienced mortgage professional will help you navigate the process with more confidence. To get started, find a loan officer in the area you’re looking to call home.