After your approval, the contract is signed, the closing date is scheduled, and you are all set to move in!
Lenders will question any big transaction or change in financial status until you have the keys in hand. So with that in mind, here are 5 things to avoid before you close on your new home.
Avoid these 5 things before closing on your home—or risk losing it before it’s even yours!
Hold Your Horses! 5 Things to Avoid Buying Before Your Mortgage Closes
Buying a house is a thrilling experience, and it’s tempting to start furnishing your dream home even before you officially own it. But hold on to your wallets, folks! Making major purchases before your mortgage closes can actually jeopardize your loan approval.
Here’s the lowdown on why you should wait to buy those fancy new digs until after your mortgage is finalized:
Why You Should Wait:
- Credit Score Fluctuations: Even seemingly harmless purchases like furniture or appliances often involve credit checks, which can temporarily ding your credit score. Remember, lenders re-check your credit right before closing, and even a slight dip could affect your loan approval or interest rate.
- Debt-to-Income Ratio: Taking on new debt, even with 0% financing, can impact your debt-to-income ratio (DTI). This ratio measures your monthly debt payments against your income, and exceeding the lender’s limit could put your loan at risk.
5 Items to Avoid Buying Before Closing:
- New Furniture: That plush sectional might look tempting, but resist the urge to buy it before closing. Wait until your loan is finalized to avoid any potential credit score dips or DTI issues.
- Cars, Boats, and Other Big-Ticket Items: Even if you’ve saved up for that dream car, hold off on the purchase until after closing. These purchases often involve financing and credit checks, which can impact your loan approval.
- Large Appliances: That shiny new refrigerator might seem essential for your new kitchen, but wait! Like furniture, appliance purchases often involve credit checks that can affect your loan.
- Clothes: Yes, even clothes can pose a risk. Signing up for a store credit card, even for a tempting discount, can trigger a credit check and potentially hurt your loan chances.
- Anything on Credit: The golden rule is to avoid any purchase that requires a credit check before your mortgage closes. This includes credit cards, loans, and even seemingly small purchases on store credit.
Still Unsure? Ask Your Loan Officer!
If you’re unsure about a particular purchase, don’t hesitate to reach out to your loan officer. They can advise you on whether the purchase is safe or could potentially jeopardize your loan.
Remember, patience is key! By waiting to make major purchases until after closing, you can ensure a smooth and successful mortgage process.
Additional Resources:
- Summit Mortgage Blog: https://www.summit-mortgage.com/blog/
- Reddit Discussion on Buying Appliances Before Closing: https://www.reddit.com/r/RealEstate/comments/r25giz/buying_appliances_before_closing/
Don’t change your job status
The people in charge of approving your mortgage loan may be concerned if you change jobs, your employment status, or your income because banks want to see proof of stable wage income.
Going from part-time to full-time should be okay, but don’t do anything to substantially decrease your paycheck.
Before your closing date, be mindful that switching from an employee to a contractor, or from a salary to a commission, even if the earning potential is higher, may be viewed negatively.
A promotion or a move to a position paying more could cause your closing to be delayed, so be prepared to provide all of your employment documentation once more.
As long as your compensation stays the same, switching jobs within the same organization should be safe.
Don’t take on new debt
Regretfully, adding any kind of debt that you did not have when you applied for a mortgage modifies your debt-to-income ratio. Stated differently, it raises the worry that you will spend too much money and not have enough money coming in.
It changes your “before and after” financial picture. You won’t like what happens with more debt if you were previously on the verge of approval or rejection.
And the new debt you incur doesn’t even have to be something as big as that new car. Closing may be delayed by as little as $3,000 in new furniture for the new home.
Even after you have been approved, your lender may still respond negatively to the credit inquiry that you initiated when you purchased the refrigerator and washer and dryer you needed for your new residence. And then you won’t have a new place for all that new stuff.
A new account or inquiry, an account with little to no repayment history, and a high balance-to-credit limit ratio combine to create a triple hit that can lower credit scores.
Thus, until the very last “i” is dotted and the very last “t” is crossed at closing, pretty much avoid going into stores, going to car lots, and applying for credit cards.