Greg: Steph, why don’t we talk today about maybe a few things that people shouldn’t do in closings that make your job a little bit more difficult.
Steph: Right. I think that keeping you informed and helping prepare you for your closing day, it’s more likely to then become more of a stress-free closing experience, not that it’ll be totally stress-free. I developed a top five things not to do during the closing process.
Greg: I’m sure you’ve seen all of these. I’m sure these have all happened at one time or another. You’ve seen everything, haven’t you?
Steph: They absolutely have. Not too often, because if you have … We work with a lot of realtors and very good loan officers, and they do prepare their clients. A good realtor really does get involved to remind their clients about these things. If you’re going through a process without utilizing a realtor, these are some things that I actually see most often when there is no agent involved.
I’ll start with number five. When you are going through a purchase transaction, so you’re buying a home, number five is don’t make any large purchases. Please resist the urge to go buy the furniture for the new house. If you go out and you charge furniture, that will show up as a new debt or obligation. Depending on the amount, I have had closings where that has caused a cancellation in the closing because the debt-to-income ratio was too high.
Greg: Banks actually go back and check? Two months ago, they might say, “Greg, you’re okay. You can buy this house.” Then I go out and I buy, really excited, I buy a new furniture suite, and cabinets for my kitchen, or a new range, and maybe a boat. The bank’s going to check again that close to closing?
Steph: Yes. Yes, it happens. It’s really sad. I had one client who went out and bought a new car, and they did not close. Because they just were so excited about the new car, didn’t think that they were in the middle of a process to purchase a home, and it did knock them out. Because a major purchase requires a withdrawal from the verified funds, or it can increase your debt ratio, which can result in your not qualifying for the loan. They do. The lender can check or re-verify the funds you’re using to closing at the last minute. Just avoid purchases that could impact your loan approval.
Greg: Okay. What’s number four on your list?
Steph: Number four is paying off existing accounts. If your loan officer advises you to pay off certain bills in order to qualify, you’ve got to follow that advice. Otherwise, leave your accounts as they are until your escrow closes. It sounds counterintuitive. You’re buying a home and you’re in that process, but you’ve got a credit card, let’s say. You think, “Well, I’ve got this money here. I’ll take this 5,000 dollars, and I’ll put it on my credit card,” not thinking that that 5,000 dollars in your savings was used as verification, again, of the funds you needed to close. If you start paying off debts, it’ll change the ability that the bank looked at …
Greg: Because that money has to come from somewhere.
Steph: It has to come from somewhere. Just be static while you’re going through a home-buying process. Number five was don’t make any large purchases. Number four is, this isn’t a good time to start using your cash to pay off debts.
Greg: Okay. Number three?
Steph: Number three is to, if you switch banks or move your money to other financial institutions, that can cause a trigger. It’s something that you don’t want to do during the closing process, because the lender has verified your funds at one institution. They need to remain there until you purchase the house.
Greg: I’m sensing a theme here. The bank’s going to come back and check, and if the account that you applied with is no longer there, if it magically disappeared, red flags?
Steph: Right. It’s just because they verified the funds. It’s just like a paperwork issue. They verified that you had the funds in bank number one. If all the sudden you close that account and opened an account, the money has to have seasoned in that account. You want to make sure that that money is in the account that was verified at the time of your application. If you change it, it can just wreak havoc. There can be delay.
Greg: Okay. Number two.
Steph: Change of job. Five things not to do during the closing process. Number two, and I say it’s probably, sadly, pretty common, is that people will come into the closing, and they will say, “I got a new job yesterday.” What happens is …
Greg: After you pick your jaw up off the floor.
Steph: Yes, after we pick our job off the floor. A job change can result in the loan being denied, especially if you’re taking a lower-paying position or moving into a different field. Just don’t think you’re safe because you’ve received approval earlier in the process, as your lender may call your employer to re-verify your employment prior to funding the loan. There’s always a re-verification of employment that you still are employed before you close, to make sure there hasn’t been a change. Don’t change jobs. Just be a Steady Eddie. Don’t change banks. Don’t change jobs.
Greg: Can I ask a tangent question here? I understand you’re saying someone shouldn’t decide to change jobs, like, “This month would be a great time to change careers.” That would really mess things up. What happens if someone has to change jobs? That comes up sometimes, doesn’t it?
Steph: Yes. That’s just something that you need to make sure, if you’re in a situation where your job changes, you need to talk to your loan officer, because they’ll need to re-verify your employment. They’ll let you know the status of that closing condition. It’s just …
Greg: Even in that case, you can still do things to help out with a smooth …
Steph: You have to disclose it. Yeah.
Greg: Okay, disclosed. You say that a lot, don’t you? Disclose, disclose, disclose.
Steph: Disclose, disclose, disclose. You have to, in a sense, be proactive in your communication, because, with your loan officer and your realtor, so if there’s some change in your employment status, some change in the financing of how you are going to pay for the house, you may not know all the details. That’s why it’s really important that you’ve got professionals around you, because they’ve been through this before. They’ll understand that these things are things just not to do during the closing process.
Greg: All right. We’ve covered four things not to do. You say you have one more.
Steph: Yes. We see this a lot, which is surprising, but changing your marital status. It’s such an exciting event that you get married. People are buying a new house. Sometimes they run off, and they go get married before the closing. They’ll hopefully have communicated that, “Hey, we just got married over the weekend.”
Greg: Hopefully. That’s right.
Steph: This actually happens more than you think. They go get married, and they come to the closing. Then they’re so excited at the closing, they’ll be telling us, but they haven’t disclosed it.
Greg: I honestly would not have guessed this one. The other ones, I think I could have gotten to. I would not have guessed this one.
Steph: That one, what you want to do is just make sure, if you have any kind of change in marital status, because in the state of Kentucky, there’s something called dower. If you’re married, your spouse needs to sign off on any kind of … like the mortgage, and there’s also another few documents. They would have to subordinate their interest to the mortgage if you’re married. That’s totally different. Then the documents would also have to reflect, in Kentucky, we require that the correct marital status be reflected on the deed and also the other documents, the recordable documents, to make sure that there isn’t a title problem in the future, to make sure that everybody knows there’s a potential that when you go to sell, you’d have to, we’d be looking for the spouse.
It’s just, make sure if you have a change in marital status, whether it’s a marriage or a divorce … Divorce also, if you are divorced, we run into that actually more than you’d think. The spouse is sometimes still on the title. If the spouse is on the title and there’s been a divorce, and then they’ve remarried …
Greg: That’s a double whammy.
Steph: It’s a double whammy, because the divorce severs survivorship. If a husband and wife, which normally you have a survivorship clause in your deed. It’s joint tenants with right of survivorship. Upon divorce, it severs survivorship. If they’re unmarried, it works fine. You just have to have both of the people on title convey. If one of the spouses has remarried, you have to get the new spouse to sign off on the deed conveying the property. It’s just something to definitely look out for.
Greg: In an earlier episode of your podcast, we talked about title insurance. You just mentioned someone coming to a closing and not disclosing that they just got married. Is that something that can affect the title of a property?
Steph: Yes. On your title insurance, if you have a failure to disclose marital status, and then that was in the chain, and it got perpetuated, where maybe it sold a couple times, but back in the chain, it had no marital status, and then nobody ever conveyed out, … there wasn’t a spouse, there was an unclear martial status … that actually can cause a huge title issue, because then you think there may have been a spouse that didn’t sign off. It’ll have to be insured over. Whoever closes it would encourage you to purchase title insurance to make sure that they insured over. It would potentially delay your closing, because it would be back in the chain. They’d have to try to get to the attorney to see if they had verified marital status or find that person to verify their marital status. It just takes time and effort.
Greg: It could be a mess.
Steph: Yeah, just time and effort to clear. That’s just a example of an owner’s title insurance issue that relates to marital status. The best procedure is just like, if you’re going to closing, don’t change your marital status. If you can’t help it …
Greg: This is not the time for life changes.
Steph: No. It’s not the time for life changes. If you have to do it, that’s fine. You just have to disclose it so we can get that person to the closing and make sure they sign all the documents.
Greg: That sounds great. Thanks.
Steph: Thanks, Greg.