Today’s blog is about one of the biggest and costliest mistakes we see buyers make, which kills deals and sometimes puts very large earnest money deposits at risk.
Borrowers mistakenly believe that once their loan is fully underwritten, with all conditions satisfied or easily satisfiable – they can stop worrying altogether about making sure they remain qualified for the remaining few days or weeks until their loan closes.
That is most definitely not the case, though.
Final Fraud Check Within 5 Days of Signing Loan Documents
Every lender must perform a “final fraud check” within 5 days of the signing of final loan documents (which are usually signed on or within a day or two of closing).
These fraud checks include an updated credit report to look for: (1) new credit inquiries; (2) new credit accounts; and (3) recent late or missed payments.
Lenders also look for other mortgage loans in process (sometimes borrowers attempt to obtain two mortgages simultaneously), and they re-check for other discrepancies such as very long commute times (to question owner-occupancy), conflicting address histories, identity issues (e.g. multiple social security numbers), and/or indications the borrower might be lying about owner-occupancy.
Lenders also do employment checks within 10 days of close to make sure the borrower is still employed.
Crazy Things We Have Seen Borrowers Do
We have seen borrowers do a lot of crazy things immediately after their loans are approved, including:
- Finance the purchase of expensive cars and/or appliances.
- Stop making mortgage payments.
- Give notice to their employer that they are going to leave their job (NOTE: Once a person gives notice, lenders can’t use the employment even if the borrower will remain at the job through close).
And yes, we repeatedly tell borrowers not to do these things, both in writing and verbally – but borrowers still do these things.
Post-close Checks Too
Lenders and investors that purchase loans also review files AFTER close. They may again verify employment, occupancy (to make sure buyers actually move into the property), or whether or not a “departing residence” was actually rented out when that rental income was used to qualify.
Don’t Hide Anything From a Loan Officer/Adviser
Sometimes these things pop up at the 11th hour because borrowers think they can get away with hiding things from lenders, such as a past divorce, late payments that didn’t show up on an initial credit report, or a property held by an LLC.
Borrowers need to know (and agents should remind them) that they should tell their loan officer everything.
Loan officers/advisers are liaisons between borrowers and underwriters; it’s a loan officer’s job to help borrowers work around their issues precisely so the issues don’t kill deals at the 11th hour.
