May 30, 2024
Once your home loan application is approved, is a borrower really home free on the way to closing day? Is the loan application a done deal once approved? Not quite, and that’s a factor some new borrowers should keep in mind at all times.
Never assume the deal is done until the keys are in your hand. Why do we say this? There are important reasons which we explore below.
Damage To The Property
The house you want to buy with an FHA loan may be in great condition when you make an offer to the seller.
But what happens if the house experiences a major disaster, fire, or even an accident? If your loan has not yet closed, you and the lender must determine whether the sale can happen.
In some circumstances, the damage may be too much and the lender may be unable to continue with the loan.
Low Appraised Value Versus Asking Price
An FHA appraisal on a given home may be lower than the asking price.
That’s a situation you must either walk away from the loan, try working with the seller to lower the price, or you have the option to agree to pay the original price despite the low appraisal. That is not recommended in typical cases, but in the end, it’s the borrower who decides.
If you choose to buy the house anyway know that FHA loan rules say you cannot finance the difference between the appraised value and the sale price. You must pay that difference on top of your downpayment.
Borrowers who decide they don’t want an FHA mortgage loan for a property appraised lower than the sale price do not forfeit their earnest money. That isn’t always true of conventional mortgages.
Negative Changes In Your Finances Before Closing Day
If you have your FICO numbers adjusted to a lower credit score, if you miss payments, or apply for new credit between loan approval and closing day, you risk having your lender re-evaluate your credit for the mortgage.
Negative changes in the amount of your monthly debt or payments, FICO scores, or available credit could endanger your home loan, even if your loan has already been approved. You need to get past closing day to be “safe.”
The same may be true in cases where the borrower has significant job changes before closing day. For best results, do not change careers, become a freelancer or contract employee, or start a small business. Save all of that for after closing day.
In short, if you aren’t beyond your closing date, avoid negative financial and employment changes at all costs.
Some new borrowers don’t know that lenders may run their credit again before they close the home loan. Lenders always have the option to pull your credit again before closing day. This is a standard practice and it pays to avoid major financial changes before you accept the keys.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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