Sometimes buyers and agents let their guard down with the relief of getting closing documents to title, and they forget that there may still be a bunch of work to be done.
Prior-to-Closing conditions are items that an underwriter would require after reviewing your file, which could simply be an updated pay-stub, a letter of explanation of recent credit inquiries or more clarification on information found in a tax return.
Here is a list of a few Prior-to-Closing conditions you should be aware of:
1. Updated Income/Asset Documentation-
You may have supplied your lender with a mountain of documentation, but make sure you continue to save all of your new paystubs and financial statements as you move through the process. Chances are your lender will want updated documents as you get closer to closing.
2. Credit Inquires –
If you have had recent inquires on your credit report, a lender may check to see if any new credit has been extended that may not yet actually appear on your report.
An inquiry could be for something minor such as a new cell phone, but can also be something that will impact your ability to qualify for the loan such as a car payment or another loan that you co-signed to help out a family member.
3. Employment Verification-
Your lender will be making sure you are still actively employed in the position that is listed on your loan application, and they will do this more than once in the process.
So make sure regular life events, such as maternity leave or a scheduled surgery, have been brought to your loan officer’s attention ahead of time.
Once an underwriter starts to uncover surprises, they may hold a file up for a while to do a bunch of unnecessary digging to find out if there are any other issues that the borrower failed to mention.
4. Funds for Closing-
Lenders will want to source where every dollar for the transaction is coming from and verify that it has been deposited into your bank account. If funds need to be liquidated from a retirement account or home equity line start the process sooner rather than later.
Sometimes lenders will not release all of the funds immediately after a large deposit so it is important to have these in place well ahead of your closing date. The same applies for Gift Funds-make sure the donor is aware of your time frame and is willing to supply the required documentation to your lender.
5. Title and Judgment Searches –
Typically, title and judgment searches are performed farther along in the mortgage process because they are not ordered until after you receive your mortgage commitment. These searches could reveal judgments against your name or the sellers along with liens against the property you are buying or selling.
Sometimes, even an old mortgage appears against the property since it was never properly discharged, or if you have a common name items could appear that are really not yours.
Either way, the underwriter and title company will want to be sure that these are cleared up before the closing.
6. Homeowners and Flood Insurance Coverage –
Lenders want to review your policy several days prior to closing to make sure coverage is sufficient and accurately account for it in your monthly payment.
Insurance coverage can sometimes be difficult to obtain depending on your past history with claims, credit, location and type of the property.