“It’s never a done deal, until it’s a done deal.”
Closing a mortgage is a big financial transaction, and it can be stressful — especially if it is your first time.
One of the biggest mistakes home buyers make is to think that the mortgage process is done once they receive a mortgage approval. That’s just the start.
With the tightened mortgage qualification requirements in recent years, it’s becoming a common practice for mortgage lenders and insurers to check your credit bureaus prior to mortgage closing, especially if there is a long period between the time of your approval and when the mortgage actually funds.
Therefore, it’s important to be careful what you do between the time your mortgage is approved and when you close on your house.
We put together a list of Do’s and Don’ts based on years of experience helping home buyers to have a smooth and successful mortgage closing.
Let’s start with the DON’Ts…
Below are the five mistakes to avoid between the time of your mortgage approval and actual funding or closing dates:
1. DON’T buy a new car or increase your car lease.
Study shows after buying a new house, people are very likely to purchase a new car. It makes sense – buying a new house is a major life decision. Your life is changing, you might decide to change your ride as well.
However, patience is a virtue in this case. New car payment or increased car payment can impact your credit, which may in turn impact your mortgage approval.
2. DON’T change jobs…yet.
Of course you can choose to change jobs anytime. However, there are good times to do it and not so good times to do that – right before mortgage closing is Not a good time. Even if it’s a better-paying job, you may have to be on a probationary period. By not changing jobs, it means you shouldn’t change industries, decide to become self-employed or accept a contract position even if it’s within the same industry.
Delay the start of your new job, self-employment or contract status until after the closing date of your mortgage. If in doubt, call your mortgage professional and they can let you know if this may jeopardize your approval.
3. DON’T make large transfers between bank accounts.
Mortgage Lenders are very particular about this one because large bank transfers make it look like you’re borrowing money. That may call your down payment source into question and impact your mortgage approval. If you do need to move large funds for necessary reasons, be ready to document and properly explain cash transactions or money movements.
4. DON’T open new credit cards.
No, you don’t need another credit card. At least not now. Opening a new credit card may impact your credit score, which in turn, may impact your mortgage approval. That promotion of introductory travel points will always be there (or be back next year), just wait until after your funding date.
5. DON’T buy furniture or make large purchases on the “Do not pay for XX years plan” until after your closing date on the house.
Even though you don’t have to pay for that beautiful sectional sofa right now, it will still be reported on your credit bureau, and might become an issue. Lenders may choose to add the purchase as a liability to your mortgage approval. Therefore, it may reduce your “capacity” to make monthly payments from the mortgage lender’s perspective, which
will impact how much mortgage you can qualify for.
Now, let’s look at the DO’s — what you should be doing before closing…
1. DO stay up to date and on top of your bills, even the ones that you’re disputing or going to payout from closing funds.
This can be a real deal-breaker. If the lender pulls your credit report prior to mortgage closing and discovers that you are late on your phone bill or a credit card went into collections, the best case scenario is that they make you pay it off before closing date.
The worse case scenario is, well, the lender may decide to pull the mortgage approval or reduce the original amount they approved you for. Nobody wants to have to scramble for funds to pay off debt right before mortgage closing – knowing there will be a lot of expenses right around the corner.
2. DO ensure you have enough money to cover closing costs.
Closing costs can be significant. Nothing is more stressful to realize you don’t have enough money to close the mortgage on the date of closing. That’s why we always advice our clients to plan for mortgage closing costs well before even signing a purchase offer.
Take a quick read of this comprehensive guide on mortgage closings cost to help you get an idea of how much it might be. You can also estimate it using this closing costs calculator.
The biggest cost is usually the land transfer tax – there’s a provincial and
municipal land transfer tax if your property is located in the City of Toronto. There is only a provincial land transfer tax for properties located in the rest of Ontario. First Time Home Buyers do get certain rebate on Land Transfer Tax. You can estimate your land transfer tax using this land transfer tax calculator.
3. DO provide documents to your mortgage advisor and lawyer as soon as possible and on a timely basis.
Paperwork is tedious, but it’s the necessary evil to ensure all the t’s are crossed and i’s are dotted when closing a home purchase. Even after mortgage approval, lenders may have a list of conditions for you to meet before they can grant the mortgage loan. These conditions often include verifying additional documents to support your mortgage application.
Lenders can get very busy during the “high” funding season. If documents
are late, their operations department may not have enough time to review and “waive” the conditions to meet the closing date, which is the last thing you want. Same with lawyers.
Collecting and providing all the required documents in time is crucial to having a smooth closing.
In closing…
While you may not lose your mortgage approval, following these Do’s and Don’ts can save you some serious stress before your closing date. It’s always a good practice to discuss with your mortgage advisor if you have any questions about closing!
Experienced advisors at Effortless Mortgage are always here to help and ensure your mortgage gets funded effortlessly : )
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