Signing Your Mortgage Does Not Close the Loan

Adhesive notes on mortgage document
Signing your mortgage does not close the loan.

After my colleague’s client signed his final mortgage documents for his refinance, he eagerly went out and bought a brand new truck. Little did he know he had just stopped his loan from closing. He thought his loan was a done deal because he’d signed the final papers, but that is not the way it works.

Signing is not closing (in most states).

For a refinance, closing is four days after signing, because federal law requires you to have a three-day right to cancel before the lender is allowed to fund and close the loan.

For a purchase loan, closing is normally two days after signing, because several things have to happen to complete the process. Your original loan documents are sent back to the lender. Someone in the funding department reviews all papers to make sure they are complete. Typically, there will be items for the escrow officer and/or processor and loan officer to do. In addition, the Deed is sent to the local county recorder’s office to receive a recording number. Only then are funds disbursed and is your loan closed.

In the West, if you used a small independent escrow agent rather than a title and escrow company that handles both functions, you are in a sub-escrow situation which can delay your closing by an additional day.

Disastrous Mistakes Borrowers Made

True Stories

After signing for a refinance, a home owner dashed into work and told off her mean boss and quit. When the lender’s processor picked up the phone (as they typically do) to verify employment, she learned the borrower no longer had an income, and the loan was suddenly denied.

One eager home buyer was so excited, she went out and purchased all new appliances from Sears. As with “Mr. Eager” above, this put her debt-to-income ratio over the acceptable percentage, and her loan was promptly denied. She had to return all the appliances and provide a receipt–or she would have lost her house!

“Can They Do That?”

People think that once the contract is signed, they are set. But that is not true for mortgages. The lender can refuse to fund and close your loan if anything changes about your employment, credit, or overall risk factor.

So be wise and make no changes during your loan process–not even after you sign final papers. Have patience. Put your new loan as your priority. There will be plenty of time to get a truck, new appliances, or switch jobs later.

 

 

32 thoughts on “Signing Your Mortgage Does Not Close the Loan

    1. The time between funding and the recording is usually a matter of hours, so it shouldn’t be an issue. But check with your loan officer, because I don’t know what state you are in or whether or not your lender does same-day funding, etc.

  1. I,ve been asked for ab an additional docs after 10 days of escrow closing and I do receive conformation of quit claim. Should I be worried about it as i do not have requested paper.
    Thanks

    1. I’m sorry, Izabella, but I do not understand your question.

      Are you saying that your mortgage lender is asking you for some additional documentation 10 days after your loan was closed? If so, yes, that is legal. At closing, you signed a form that says if additional information is needed, you will cooperate in providing it.

      I have no knowledge of your quit claim or what it is about. I do not know what “requested paper” means. This is not my loan and I have no knowledge of where you are located, what your loan is about, who your lender is, or anything else. Therefore, I cannot comment.

    1. Joyce, I don’t know what you mean by “internet contract.”
      When purchasing a home, the utilities are set up to begin in your name on a certain date, which is the date of occupancy. You set it up prior to closing.

  2. My docs were signed on January 4… it’s now Feb 8 and mortgage company says my loan will not be approved because my co borrower retired from her job. Can they do this? I’ve already made my first payment and have been in the home over 30 days.

    1. Melissa, I’m not sure I understand the total situation. Are you saying that the loan funded and closed (not just signed but actually funded and closed) January 4? And then you received a welcome letter with the first statement for payment due? And after that, the loan officer called you and said the loan is no longer approved and they are going to recall the loan?

      Or are you saying you signed but the loan was never officially funded and closed?

      In what way have you been notified that the loan is no longer valid? A phone call from your loan officer? A letter in the mail? Or?

      Please give me a clearer picture, so I can give you a good answer.

  3. can a late payment reported on credit bureau after signing docs can cause loan issues? Funding is supposed to happen 24-48 hours after signing. Will they pull credit report at the time of funding after signing?

    1. Sam, theoretically, yes. Any adverse change to a loan before funding can cause the loan to be denied and not fund. However, it is very unlikely that the lender will pull a new credit report if the current credit report has not expired. Most commonly, the lender calls the employer to verify the borrower is still employed, but does not re-look at credit.

      1. Carolyn, I am in N.C. and have applied for a refi on a home that has no mortgage. Settlement statement was signed a week ago. Loan officer said our loan was only approved today yet we have to wait until Monday (3 days later) to close and by federal law 6 days later to fund. I’ve done research and I see 3 or maybe 4 days to fund after closing. If what they are saying is true, then from the time the settlement statement was signed until closing, it will take 8 days plus an additional 5-6 days for a total of 13/14 days. This far beyond the federal law timeframe and far too long being that we are refinancing on a home owner with no existing mortgage. Plus credit is excellent. This is with Amerisave. We’ve been working with them since our offer was accepted, which in all will be just about 2 months! What would cause this to take so long?

      2. Ann, you have a good question.

        Federal law requires a 3-day waiting period (not counting Sunday or Federal holidays) between signing the Closing Disclosure and signing the loan documents. In addition, with a refinance, federal law also requires another 3-day waiting period (not counting the day of signing and not counting Sunday or federal holidays) between when you sign loan documents and funding/closing the loan.
        This means if you sign final documents on a Monday, the soonest a refinance can close is Friday. (Tues., Wed., Thurs. wait days)
        If you sign on a Wednesday, the soonest a refinance can close is the following Monday (if there are no federal holidays).

        If I knew the calendar days of your CD and loan signings, then I could calculate the soonest closing day, but you can do this yourself using the info I’ve provided.
        Amerisave is a direct lender, and that is why they are so slow. They advertise all over the Internet, so they might have more customers right now then they can handle in an expeditious manner. I don’t know how long their line is for underwriting approval or for doc draw, but two months is a long wait. By contract, I as a mortgage broker (and other mortgage brokers) have wholesale lending where we can close in three weeks. Earlier this month, I had a loan go from application to final approval in 8 business days. So, speed is one advantage of using a mortgage broker over a direct lender (so you know for the future).
        I hope Amerisave has provided you with a personal loan officer who is watching your loan and pushing it through all the stages to closing. You should contact your loan officer and ask about the timeline.

  4. I’m wanting to change jobs and careers, but we’re in the middle of buying a house. What is the timeline for being able to do that after the buying process is finished? How do I know when it is safe to leave my current company without there being repercussions on the home and loan?

    1. Crystal, that is an important question, because you do not want to lose your house due to quitting your job while the loan is in progress. Even if you tell people you are intending to quit, that could jeopardize the loan closing. So you must keep this plan 100% private and to yourself. Only after the loan is fully funded and closed can you make a career change. But even then, make sure that you have enough funds on hand to make the monthly payments while you are in transition.

  5. Dear Carolyn,

    Can we switch lender after signing all the escrow paper works on a new purchase?

    Lender didn’t provide Closing Disclosure 3 business days in advance of signing and never locked the interest rate; added thousands of dollars on point to get the same interest rate on the Closing Disclosure.

    We realized the problem the day after signing before wiring down payment to Escrow and requested Escrow to hold.

    Thanks very much in advance.

    1. Sun, if the lender did not provide the CD 3 days before signing, that is a serious violation. But first, make sure you are counting the days correctly. Saturday counts as one of the days for the CD. Also, the day it was provided counts as a day. So if the lender provided the CD on Friday, then the 3 days are Friday, Saturday, and Monday. You could legally sign on Tuesday. Only Sunday and federal holidays do not count.

      If you still believe the lender violated the 3 days, then you can file a complaint with the Consumer Finance Protection Bureau. Google CFPB + complaint to locate it. But first, contact your lender about the violation and ask for the extra cost to be refunded, because it is likely that the CFPB will force them to refund you. Be prepared with all the paperwork to prove your complaint.

      When you saw the costs that violated your expectation, that was the time to stop signing and call your loan officer. That was the time to stand up and walk away. By signing, you have agreed to the terms on the documents. That is why there is the 3-day rule. It gives you 3 days to read over the numbers before signing.

      If you didn’t read the numbers and signed anyway, or if you didn’t like the numbers but signed anyway, then that was your choice.

      With a purchase loan, signing documents in escrow is final and cannot be undone.

      Please write another response and tell us who this lender was.

      1. Thank you very much, Carolyn.

        Yes, you are correct. We shouldn’t have signed the documents and it was our fault on that.

        We got the CD from Title instead of the lender one day before notary signing. We will review all documents to double confirm prior to filing a CFPB compliant.

        We are inexperience and unaware of the 3 business days CD requirement. With the notary on signing day, the final closing disclosure listed both original estimate closing cost as ~$13k and final closing cost as ~$14k side by side. That misled us that the final closing cost is lower than the original estimate by ~1k. On the contrary, the load estimate closing cost was $7k we e-signed a few weeks ago, which we didn’t notice/recall till after signing.

        Just want to clarify my understanding below:

        1. We can still walk away from this purchase. The only down side is losing the earnest money. The signed papers do not blind us to borrow the money from this lender.

        2. Can we switch lender without any obligation to the current lender if the seller agreed to following?

        – extend closing date without extra fee (seller is a developer and the purchase is on a new development). We have verbal agreement from developer.

        – keep the earnest money by using the same Title and Escrow company even switching lender.

        I prefer not to disclose the lender name at this point. Nevertheless, we lost trust with this lender.

        It would be outstanding, if CFPB can force the lender to cover the cost of points with new lender. We have to pay thousands of dollar more for the same rate with any lenders we requested to lock a few weeks ago.

        Thanks very much again for your advises.

        Sun

  6. Your signed contract DOES bind you to the loan. The lender will fund and close the loan. You cannot cancel a signed loan. Please read the blog post I made today which provides more detail. http://www.askcarolynwarren.com
    My additional comment is that the estimate was only an estimate, not final numbers. $1,000 is not a huge difference when purchasing a home that is $100,000 or more.
    Still, if the lender did not give you the CD 3 days before signing, that is a violation of federal law and very serious.

  7. Thanks very much, Carolyn. Understood. Thanks very much.

    The difference is not $1000. The lender made the CD looks like $1000 cheaper than the original estimate.

    The difference is ~$6,500, ~$3500 on points + another $3000, between the e-signed estimate and the CD on Other fees as well as Title fees sections. 92% higher than the e-signed loan estimate.

      1. I am new to this so just to piggyback on this comment, after closing, I wanted to get a personal loan to consolidate my other credit card debt that was not included in the cash out refi, will applying for a loan a month after the closing be an issue to the new lender and then would cause the new lender to reverse the decision or even ask to pull my credit report again. My loan consultant mentioned that further documents might be asked after the closing but could not tell me what documents they might ask for and it’s been over a month now after closing.

      2. You have a good question, JN. If a month has passed and you have made your first mortgage payment on the refi, then you are clear to take out more credit if you choose. Normally, I would say a week is long enough to wait, but since your loan officer had a caution about more documents being needed after closing, it’s a good idea to wait a little longer. When you have made your first mortgage payment, you know the loan is fully set-up and “all-clear.”

  8. Hi Carolyn, I signed all the closing papers on Tuesday and was wondering if the lender could deny funding after signing all papers (its a refi in Georgia)? I thought even with a refi after I sign the papers with lawyers it’s a done deal. I monitor my credit score and was 701 on 4/1 but it dropped 28 points on 4/18 which I think was due to credit checks and I opened another credit card on 4/1 (which I disclosed when I started my refi). Thanks,

    1. Cassidy, signing all papers does not make your loan a done deal. The lender can deny the loan and refuse to close it during the 3-day right to cancel. Because your 4/1 credit card is not a last minute surprise and was previously disclosed, I don’t think anything bad will happen. I expect your loan will close on time. However, between now and then, do not make any financial moves, don’t open any new credit, and don’t quit or change jobs — or your loan could very well get denied and not close.

  9. I applied for a refi through my current mtg. company. Our contact person is the V.P of the mtg. co. He suggested a refi due to hardship circumstances and said we wouldnt even have to do paperwork his office could copy most of what would be needed. We agreed upon adding our newly purchased vehicle that was in arrears {this vehicle was the reason for hardship} and a couple bills to the refi as well as some cash out for remodel completion. Our contact person phoned us in distress about his license issue he was having and said he needed to fix it b4 continuing explaining itd be a longer than normal wait. We were so appreciative that he had helped us effortlessly in the past we agreed to the delay and sympathizing with him as he grieved. 3 months later moving forward there were some diffiulty in transferring a document which after several attempts was finally received by him. His demeaner had changed completely and he was quite short and unprofessional in our conversations. Long story shorter we get the closing docs when a creditplus agent contacted us about a 3way call to discuss the vehicle payoff amount etc. with the bank. A cash payoff was given and the bank employee also discussed the specific date for that amount and how much each day after that would add to the payoff. Everything went well and we esigned our loan that day. However that evening our vehicle was repossessed. I contacted the bank spoke to the employee who expressed concern about his need to contact the tow company telling me to show the documents to the tow driver which was impossible bcuz he had his radio loud and window up ignoring our attempts to cease the tow. so without a choice and under advisement of the bank employee we let it go. assuming wed get it back due to the error. To add to the dismay of the repo when i contacted the mtg company assuming hed want to know and thinking he could have someone from his office call the bank about the repo and he he infuriatedly said god damn it im pulling the loan and hangs up. now our credit is destroyed going from a740 to a 507 we cant find anyone to refi due to the drastic credit change from the bills added to the refi due and the repo and even a reported late pymt from the mtg bcuz we thought we didnt have to make the pymt. bcuz we signed and it was getting paid off.. We took out a nother small loan on our 2nd vehicle to pay the appraisal planning to pay it with the refi cash out $ and what can we do now? the papers were signed it was past the 3days after we signed. Mtg co knew we were in hardship circumstances full transparency and despite our attempts to receive the same empathy we had shown him he pulls the loan in a most shocking and blatently innappropriate manner. We have managed to get everything current avoiding losing everything but are still feeling like we should have some recourse or advice or resource ??

    1. Rudolph, that sounds like a convoluted nightmare! If the loan officer (or you) had known the law regarding auto repo, you could have called and gotten the car back so the loan could fund and close. As I understand it, law requires that the automobile creditor offer to let you buy back the car. That could have been done with your cash out refi if they had let you retain the car for a few more days. Too bad you weren’t able to hide it until the refi funded. If the creditor was Santander, I can tell you there was a class action lawsuit against them. Google Santander lawsuit settlement to see if you qualify for compensation. If you would like to consult with a credit attorney who has helped some of my book readers get justice for their illegal repos, see Brian L Ponder’s contact here: https://www.brianponder.com/

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