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.



11 responses

  1. Can I purchase a new car after funding, or do i need to wait until the deed is recorded?

    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.

  2. 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.

    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.

  3. Dana Wilkinson | Reply

    great info here, thkx for sharing

  4. Can i go ahead and sign an internet contract and open the utilities account after closing day?

    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.

  5. 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.

  6. 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.

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