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You may breathe a sigh of relief once your offer to purchase a home has been accepted, but you’re not quite done yet. Between the time you come to terms with the sellers and the moment you finally put your key in the front door, you’ll be navigating the closing process—along with its associated costs.
There are multiple steps involved in the transfer of a home. While closing times can vary, it can take up to three months between an accepted offer and signing day, notes David Stevens, a REALTOR® with Royal LePage Coast Capital Realty in Victoria, British Columbia.
This includes time for processing the deposit, conducting a title search, getting a home inspection organized, finalizing the purchase agreement, the lender’s property appraisal, and getting final loan approval. Stevens recommends buyers budget about 3% of the purchase price towards closing costs, over and above the deposit.
“What a lot of people don’t understand is lenders don’t only evaluate the buyer’s ability to make the mortgage payments, but also their ability to pay for all other credit obligations, such as student loans, cars, and lines of credit,” he explains.
Below are four things you should not do during the closing process, according to Stevens.
1. Go on a shopping spree
We get it; it’s exciting to start imagining yourself in your new home, and many buyers want to rush out and buy new furniture.
“Those buy-now-pay-later programs are also calculated into the debt servicing ratios, so if the lender revisits the buyer’s credit report before completion—which they very often do—and it has changed at all, they actually have the right to withhold financing,” warns Stevens. “It’s important for buyers to maintain the same credit position as at the time of the financing application with their lender.”
Ditto for buying a new vehicle. You might be purchasing a home farther from work, but now’s not the time to add a car loan to your list of debts, he adds.
“It’s a different story when you have a car payment before applying for a mortgage, because the lender will take that into account,” says Stevens. “But after you’ve been approved for a mortgage, a new car payment is going to change your credit position, which could cause consequences. You could be scrambling for a different lender at the time of completion, which is stressful for both sellers and buyers.”
In fact, any new big-ticket item purchases can raise red flags and delay your financing approval—or even ruin it.
2. Quitting your job
Sure, it would be great to have a higher salary now that you’ll be tackling monthly mortgage payments, property taxes, and home insurance, but wait until the closing process is finalized before you blitz the internet job boards with your resume, cautions Stevens.
“I’ve seen a lot of buyers take higher-paying jobs between that phase of getting an unconditional accepted offer and completing on the deal, but some of these new jobs, even though the buyer thinks they’re in a better position, come with a probation period. If it’s a temporary or casual position, that could cause issues with the lender.”
3. Start booking renovation projects
It’s so tempting to make plans for opening up all the walls in your new home, ripping up the old carpet, or gutting the kitchen. Although the wait times to book contractors can be long, don’t get ahead of yourself by hiring crews to swing their sledgehammers. Putting down deposits and signing remodeling contracts is a bad idea until you officially own the home, says Stevens.
“I typically tell my purchasers to live in the house for 12 months before doing renovations so they get to know the property inside-out and figure out where they can better spend their dollars,” he says.
Of course, if the home you’re buying needs a massive overhaul before it’s even livable, you can get started as soon as all the final paperwork is signed and completed.
4. Getting overwhelmed
Being patient makes sense during the closing process, says Stevens, and your REALTOR® will be able to guide you through. There are many moving parts to the closing process, and getting overwhelmed can ultimately make it an unenjoyable experience for you.
“It does become complicated and can be stressful so it’s important to slow down and take the proper steps toward a successful completion,” he says.
Purchasing a new home is exciting, and it’s understandable why you’re raring to go once your offer has been accepted, but making large financial decisions during closing can be detrimental to the entire process. When in doubt, check with your REALTOR® to make sure your next financial move doesn’t affect your ability to close on a home.