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
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.