Real Estate Settlement
Real estate settlement is the concluding step in the escrow process. On this day loans are funded, deeds are recorded and home ownership is transferred to buyer. Home buyers have to be especially careful when making any new financial decisions before closing escrow. Lenders are very observant and sensitive to any new buyers financial activities while in escrow.
Aside from the mortgage itself, home buyers should resist the urge to spend or borrow any money prior to actually making real estate settlement on the property they are purchasing. Taking out additional loans and/or reducing your cash reserves could send up a few red flags for the lender who has agreed to loan you the funds for your home purchase.
Borrowing more money and/or depleting your existing funds can change your debt-to-income ratio as well as your credit score. Both of these circumstances can make lenders shy away from signing on the dotted line that gives you access to the thousands or millions of dollars you need to buy your property.
If a lender sees that you are borrowing money in addition to the home loan that you are trying to take out, he might wonder how you intend to repay the loans. Even if you think that your income sufficiently allows you to make monthly payments on all of the loans that you obtain, the mortgage lender might not agree with you. As a result, the offer to loan you funds through a mortgage might be withdrawn, leaving you empty handed at settlement.
Moreover, if you make a few large purchases, either in cash or on your credit card, you could also give the lender a reason to reconsider loaning you money. Charging large sums to your credit card changes your level of debt. This behavior could also affect your credit score negatively. If you reduce the amount of cash that you have on hand, the lender could begin to have doubts as to your ability to handle your money responsibly.
The most common mistake home buyers make is spending or borrowing any money prior to the close of escrow. This mistake can lead to a delay in closing or even result in the lender deciding not to fund the loan after all. If you are trying to borrow money to buy a home, it is best to avoid making any large purchases before you make real estate settlement, particularly if you are using a credit card or obtaining an installment loan. Just because you’ve been per-qualified to receive a mortgage doesn’t mean that you are actually going to get it once the time arrives. Therefore, you should avoid spending any money on large items until after you’ve gone through the settlement process. If you must borrow or spend any substantial amounts, it is best to contact your loan person for advice.
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