Question: Cynthia, my loan is approved, nothing else can go wrong now, right?
Answer: This is a question I hear from buyers on a daily basis, and my answer is always the same:
“Don’t ask an Escrow Officer if there is anything that can go wrong, because, believe me, we have seen it all!”
Here are some examples of last minute changes that can short circuit an escrow closing:
- BUYER QUITS, OR CHANGES JOBS: Yes, it happens. Don’t make any employment changes without consulting with your lender. When a buyer changes jobs, the lender will generally delay the closing until the buyer has collected a number (usually at least two) of paychecks from the new employer. If you get fired, well, there goes the income with which you qualified for the loan. Even a leave of absence can have a negative effect on the closing.
- CLOSING FUNDS COME FROM ACCOUNTS UNVERIFIED BY LENDER: Part of the loan qualification process is for the lender to “source” the down payment and closing costs. The lender will look at recent bank statements, paycheck stubs, etc., so that they can follow the paper trail of the buyer’s savings. If funds are wired into escrow from a bank account that has not been verified/sourced by the lender, it causes delays. Sometimes, replacement funds have to be deposited in escrow, from the originally sourced account. IT DOES MATTER where the funds come from.
- BUYER BUYS A NEW CAR, OR ACQUIRES OTHER DEBTS: The lender has qualified the buyer to be able to make payments based on the credit report. If you acquire new debt, it could throw your ratios of debt to income way off, and may mean the loan cannot close. It is a good idea to wait until after escrow closes to make large purchases that are financed, such as furniture, appliances, vehicles, or even large credit card purchases.
- LENDER UNABLE TO VERIFY EMPLOYMENT: This happens a lot, strangely. Buyers provide tax returns and paycheck stubs as evidence of their employment. Lenders will also request that employers complete a “verification of employment” form (we call them “VOE’s”). It is amazing how often employers do not respond, or complete the VOE incorrectly. Just prior to the funding, a lender will make a phone call to the buyer’s employer, to make sure the job is still secure (see number one above). I have had escrows delayed for days, because the lender is unable to reach the employer for that verbal VOE. When buying a house, speak to your employer, find out the best way, proper individual, etc., for your lender to reach someone at your place of employment that can give the required verification. Let them know the importance of being available, and maybe remind the employer when you get close to closing.
Good communication with your lender, and a little bit of planning ahead can help prevent any of the delays listed above. Keep in mind that you will need to be available to sign loan documents, provide last minute details, and wire funds in the last days of your escrow. While it is possible to do this even if you are traveling, it is generally a smoother process if you are close by with a flexible schedule. Speak to your Escrow Officer so that everyone is aware of the best way to reach you, and what your availability is.
Then, get packing!