5 Costly Mistakes That Could Jeopardize Your Home Purchase – Avoid These Before Closing!

5 Things NOT to Do Before Closing on a Home

Buying a home is an exciting milestone, but it also comes with a complex process that requires careful planning and financial discipline. Many homebuyers are unaware that their financial decisions leading up to closing can significantly impact their mortgage approval. Even minor financial moves can cause delays, alter loan terms, or even result in a denied mortgage.

To ensure a smooth closing process, here are five critical things you should NOT do before closing on a home.

1. Do NOT Change Your Employment Status

Your job and income stability play a crucial role in your mortgage approval. Lenders assess your employment history and income to ensure you have the financial ability to pay off the loan. Changing your employment status before closing can raise red flags for your lender, which could lead to complications, including loan denial or a reassessment of your mortgage terms.

Why This Matters:

• Lenders verify employment before approving your loan and may do another verification right before closing.
• A change in employment, even if it means a higher salary, could disrupt your loan approval process.
• If you switch to self-employment or a commission-based job, lenders may view your income as unstable.

What You Should Do Instead:

• If possible, wait until after closing before making any career moves.
• If you receive a job offer that you cannot refuse, discuss it with your lender before making any decisions.
• If a job change is unavoidable, provide documentation that proves stability and income continuity.

2. Do NOT Move Your Money Around

Mortgage lenders closely monitor your bank statements to track the source of your down payment and closing costs. Large, unexplained deposits or frequent transfers can raise red flags, leading to delays in the underwriting process.

Why This Matters:

• Lenders need a clear, documented history of your finances.
• Large deposits from unknown sources can require additional documentation and scrutiny.
• Moving money between accounts may make it harder for the lender to track your assets.

What You Should Do Instead:

• Keep your money in one place and avoid unnecessary transfers.
• If you receive a large deposit, be prepared to provide documentation explaining its origin.
• Consult your lender before moving funds around to avoid any red flags.

3. Do NOT Cosign a Loan

Cosigning a loan for someone else means that you are legally responsible for the debt if the primary borrower fails to make payments. Even though this may seem like a generous gesture, it can significantly impact your debt-to-income (DTI) ratio, which is a key factor lenders use to evaluate your mortgage eligibility.

Why This Matters:

• Your lender will include the cosigned loan in your overall debt obligations.
• Higher debt levels can reduce your borrowing power or disqualify you from your mortgage.
• If the primary borrower misses payments, it can negatively impact your credit score.

What You Should Do Instead:

• Wait until after closing before cosigning any loans.
• If you must cosign, inform your lender and see how it may impact your mortgage application.
• Consider alternative ways to help your friend or family member without jeopardizing your home purchase.

4. Do NOT Finance a New Car (or Any Other Major Purchase)

Taking on new debt before closing is one of the biggest mistakes a homebuyer can make. Financing a car, furniture, or other big-ticket items increases your debt-to-income ratio and may lower your credit score, both of which could lead to a mortgage denial.

Why This Matters:

• Lenders perform a final credit check before closing. New debt can change your financial profile.
• Your mortgage approval is based on your financial standing at the time of application. Adding new debt alters this.
• Increased debt can lead to higher interest rates or even loan rejection.

What You Should Do Instead:

• Delay major purchases until after closing.
• If a purchase is unavoidable, consult your lender to assess its impact on your mortgage.
• Use cash savings rather than financing, but ensure it does not impact your required down payment or closing costs.

5. Do NOT Miss Payments

Maintaining a strong credit score is critical in the mortgage approval process. Missing payments on credit cards, loans, or other bills can significantly impact your credit score and create doubts about your financial reliability.

Why This Matters:

• Payment history makes up 35% of your credit score.
• A single late payment can drop your credit score and lead to a higher interest rate or even loan denial.
• Lenders check credit again before closing. If your score has dropped, your loan terms may change or be revoked.

What You Should Do Instead:

• Set up automatic payments to ensure you never miss a due date.
• Monitor your credit to check for any errors or changes.
• Communicate with lenders if you anticipate any issues making a payment.

Final Thoughts: Protect Your Mortgage Approval

The period between mortgage approval and closing is critical. Any financial changes during this time can jeopardize your home purchase. By following these five guidelines, you can help ensure a smooth and successful closing process.

Quick Recap of What NOT to Do:

1. Do NOT change jobs or alter your income.
2. Do NOT move your money around without consulting your lender.
3. Do NOT cosign loans for anyone before closing.
4. Do NOT take on new debt, including financing a car or large purchases.
5. Do NOT miss payments or damage your credit score.

What You SHOULD Do:

• Stay financially stable and avoid unnecessary risks.
• Keep open communication with your lender.
• Plan major life and financial decisions after your home purchase is finalized.

By following these simple but essential guidelines, you’ll be in a strong position to close on your dream home without unexpected setbacks. Your dream home is almost yours—don’t let last-minute financial mistakes ruin it!