The period between signing your purchase contract and closing day can feel like a waiting game, but behind the scenes, your lender and title company are actively working to finalize your transaction. Similarly, your actions during this time can directly impact their ability to complete this process. Many buyers may be surprised to learn that certain actions or decisions can potentially derail their entire transaction.
Changes to your finances, personal status, or professional situation can trigger additional lender requirements, delay your closing, or even result in loan denial. Learn what actions to avoid during this period to protect your investment and ensure you reach the closing table successfully.
In this article:
The Home Purchase Paradox
The purchase of a home often coincides with major life changes. Many couples purchase their first home together after getting married and combining households. Others relocate for new job opportunities and need to buy in an unfamiliar market.
However, the mortgage approval process requires the exact opposite of change. Lenders need to see consistent income, stable employment, and predictable financial behavior. This creates a challenging paradox for homebuyers who are simultaneously managing life transitions and navigating loan requirements.
Lenders will verify your financial status at key points during the closing process, usually during the initial underwriting and again right before closing. Your lender will monitor your employment status, credit reports, and bank statements to ensure that your financial situation is consistent before closing. Any changes during this period can trigger additional requirements for documentation or even loan denial.
In the time between contract and closing, you need to maintain your financial status quo, even when other aspects of your life may be changing. Temporary restrictions on major financial decisions protect your ability to complete the purchase and move forward with your plans.
Preserve Your Financial Stability
Your lender approved your mortgage based on your financial profile at the time of application. In the weeks leading up to closing, it’s essential that you keep that profile stable. Your lender will evaluate your ability to repay your loan again right before closing, making stability your top priority during this waiting period.
Balancing the Debt-to-Income Ratio
Your debt-to-income ratio represents the percentage of your monthly gross income that goes toward debt payments. Lenders use this number to determine your loan eligibility, and even small changes can push you over their acceptable limits. When you make a large purchase, such as a car, furniture, or appliances, during this period, it adds new monthly payments to your debt obligations. Even if you can afford the payments, the additional debt could potentially disqualify you from your mortgage loan.
You should also refrain from opening new credit accounts. For example, financing new furniture for your home or opening a store credit card to save 10% on appliances adds monthly payments that weren't part of your original loan qualification. Each new credit card, store financing agreement, or personal loan increases your monthly debt obligations.
Bank Account Activity Red Flags
In addition to watching your bank activity for financial instability, lenders are also on the lookout for signs of fraud. Large unexplained deposits trigger money laundering concerns and require extensive documentation to verify their source. Even legitimate deposits from bonuses, tax refunds, or family gifts need proper documentation showing where the money originated.
Significant withdrawals can be equally problematic. Lenders calculate your available funds for closing costs and down payments based on your account balances. Large withdrawals may indicate you no longer have sufficient funds to complete the purchase. Whether you’re giving or receiving large sums of money, you’ll need to provide your lender with a complete paper trail.
Changes in Credit Behavior
Well-intentioned financial moves can actually backfire during the mortgage process. Paying off existing debt, while generally good for your finances, can temporarily hurt your credit profile. Credit scoring models factor in your credit utilization and payment history. When you suddenly pay off accounts, you lose that positive payment history and may see a temporary credit score drop.
There are similar risks to closing credit accounts. Reducing your available credit can increase your credit utilization ratio, even if your spending remains the same. For example, if you have $2,000 in credit card balances across $10,000 in available credit, your utilization is 20%. If you close a card with a $5,000 limit, that same $2,000 balance now represents 40% utilization on your remaining $5,000 in available credit, potentially lowering your credit score.
Minimize Changes to Personal and Professional Status
Lenders view any changes in your personal or professional circumstances as a potential risk, even when the change appears positive. A promotion with a higher salary or a new marriage combining two incomes may seem beneficial, but both scenarios require extensive documentation and can delay or complicate your loan approval. In general, the mortgage industry prioritizes consistency over improvement during the loan approval process.
Maintain Employment and Income Continuity
Employment changes can create some of the most challenging situations for homebuyers. The new job trap catches many people by surprise: accepting a better position with higher pay can actually harm your loan approval. Lenders prefer borrowers with a stable employment history and may view recent job changes as income instability, regardless of salary increases.
These issues are compounded by challenges with documentation. New employers may not provide the employment verification letters lenders require, and probationary periods at new jobs can disqualify you entirely. Some lenders require you to complete probationary periods before approving your loan. Switching employers, changing from W-2 employee to contractor status, or taking time off work all trigger additional underwriting requirements.
If your home purchase coincides with a job change, communicate with your lender immediately. Some lenders can work with job changes if you provide proper documentation, including offer letters, employment contracts, and proof of start dates. However, be prepared for potential delays and additional requirements.
Avoid Modifying Your Personal Status
Changes to your personal status can affect both your loan eligibility and property title requirements. Marriage and divorce proceedings change your legal status and may alter how the property’s title gets recorded. Name changes must be updated on all loan documents and can create complications with title transfers and property ownership records.
If you get married while waiting to close on a home, your lender may need to evaluate your combined finances, even if you originally applied individually. Divorce proceedings can affect your income, debt obligations, and legal ability to purchase property. Joint versus individual qualification decisions become more complicated when your marital status changes during the closing process.
If your home purchase does coincide with major life changes, be sure to communicate with your lender and title company as early as possible. For example, if your wedding is planned for the week before closing, notify both your title company and lender so they can be proactive in managing your loan and file. The process is much easier when they know in advance rather than being surprised right before closing. Avoid eloping or making last-minute decisions to get married during this period. While challenging, successful closings during life transitions are possible with proper planning and clear communication.
Tips for a Smooth Closing Process
No one wants to see their closing delayed or jeopardize their loan approval status. To successfully navigate the closing process, you need to pay careful attention to your professional team’s guidance and maintain open communication throughout this period.
Follow Professional Guidance
When your lender, agent, or title company tells you to do something or avoid certain actions, their advice stems from years of experience with similar transactions. Ignoring their guidance puts your entire purchase at risk. These professionals understand the complex requirements and timing needed to reach a successful closing.
Well-intentioned attempts to "help" often create thed biggest problems. For example, paying off your existing mortgage early may seem like it simplifies your transaction, but it actually causes delays. Banks need time to process payoffs and update their systems, often taking a week or more to provide the documentation title companies need to verify the mortgage has been satisfied. When you pay off your mortgage the day before closing, your title company cannot obtain the necessary paperwork, forcing your closing to be postponed.
Similarly, selling assets like boats or vehicles to increase your down payment can backfire. Large deposits from asset sales require extensive documentation to prove the funds' legitimate source. Lenders need to verify the sale, confirm the buyer paid you, and ensure the money has been properly seasoned in your account. Instead of making last-minute asset sales, discuss your funding needs with your lender well in advance so they can guide you through the proper documentation process.
Follow Best Practices for Communication and Organization
Beyond following your team's advice, adopting consistent best practices throughout the process helps ensure your closing stays on schedule. Submit requested documents promptly when your lender or title company asks for them. Delays in providing paperwork can push back your closing date and affect other parties in the transaction. Keep all your bills current and accounts active, as lenders may pull updated credit reports and bank statements right before closing.
Be proactive about potential issues. If you receive a job offer, need to replace a vehicle, or face any situation that might affect your finances, contact your lender immediately. They can advise you on the best course of action and help you navigate the situation without jeopardizing your loan. When in doubt, consult with your lender before you act.
Some circumstances remain beyond your control, such as unexpected job loss or medical emergencies. When these situations arise, communicate with your agent and lender immediately. They may be able to work with you to adjust timelines or explore alternative solutions.
Prepare for last-minute documentation requests from your lender. Final underwriting requirements may include updated pay stubs, bank statements, or letters explaining specific transactions. Lenders make these requests to ensure your financial situation remains consistent with your original application. Having recent documents readily available and responding quickly to these requests keeps your closing on schedule.
Your Title and Closing Partner
Ready to get started? Contact Bluegrass Land Title today to learn more about our comprehensive closing services and discover how our team can support your homebuying journey.
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