What to Expect During the Mortgage Closing Process

After you have found the house, had your offer accepted, completed the loan application, survived the endless requests for additional documentation, and received your final underwriting approval, you now need to navigate your way safely through the loan closing process. With the end of the home buying process in sight, you need to sign your closing papers and get the keys to your new house. Hopefully, you have chosen to work with a professional and experienced real estate agent and loan officer, who will guide you smoothly through the end of the home buying process. Working with knowledgeable and well versed real estate professionals will lead you through the loan closing process, which is often said to be the most critical part of the real estate transaction. Many unexpected problems can arise delaying or possibly derailing the mortgage from closing. Besides "Acts of God" or unpredictable incidents such as severe illness or death of the seller, there are a few common pitfalls you will want to avoid. They can derail your dream of homeownership and snatch the keys right out of your hands. The following are some of the most common conditions that can delay or prevent your mortgage from closing:

1. Credit Report Issues - Prior to closing, lenders will pull a soft-pull credit report to check for new debt. If the soft-pull report lists any inquiries or new debts they will have to be explained. If there are any new debts, they will affect the debt ratio and may result in the loan being denied.

2. Employment Verification - Lenders will verify employment during the loan approval process, and then again usually within 3 days of the loan actually closing. If there is any change in employment or employment status, you should notify your loan officer immediately.

3. Funds Used for Closing- Lenders will verify the source of funds needed for closing. You will have to account for all deposits. All gifts will need to be fully verified from the giftor's bank account to yours. If funds are coming from a retirement account, you will need to provide a full paper trail proving the funds have been liquidated and deposited into your account.

4. IRS Verification - Lenders will require a tax transcript to verify your last 2 years federal tax returns have been filed with the IRS. If there are any discrepancies between the transcripts and the tax returns you turned in, the difference will need to be fully explained and corrected prior to closing.

5. Appraisal Repairs - If the appraisal was "subject to" repairs being completed. The repairs will have to be completed and re-inspected by the appraiser prior to closing on the house.

6. Point of Sale Cities - If the property you are purchasing is in a point of sale city, the city violations will need to be completed and re-inspected by the city housing inspector. You will then need to go to the city building department and obtain a clear occupancy permit prior to closing. Some loans such as conventional or rehabilitation loans may accept a temporary occupancy permit with violations.

7. Title Insurance - The title company will search for any liens against the property, possibly from unpaid taxes, mechanics liens from contractors, or any other encumbrance that may be on the property. These will have to be cleared up, before the lender or title company will allow the house to transfer.

8. Home Owners Insurance - You will need to obtain proof of home owners insurance prior to setting your closing appointment. You should also verify if flood insurance is necessary. Sometimes past insurance claims or credit history will delay someone from obtaining insurance. You should start looking for home insurance at least 2 weeks before closing.

This is not a complete list of potential delays to the mortgage closing process, but it is a list of some of the most common issues. It is always a good idea to stay in touch and keep your loan officer and real estate agent informed of any changes that may occur prior to closing on your new house.

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