Buying a car, furniture, or appliance on credit card right before closing on a house loan will negatively affect your credit score and history, making it impossible for your application to be approved. Although you might want to use your credit card to make purchases in order to accrue reward points that can be exchanged for merchandise or cash back, doing so could put you in jeopardy when it comes to maintaining your eligibility for a mortgage. Do you know how? Continue reading to find out.
Buying a house is a thrilling yet stressful experience. You’re likely juggling a million things at once, from packing boxes to coordinating movers to securing the best mortgage deal. But amidst the chaos, it’s crucial to avoid making certain mistakes that could jeopardize your entire closing process.
Here are 5 mortgage closing blunders to steer clear of:
1. Opening a New Credit Line: A Recipe for Disaster
Imagine that you’ve reached the final stretch and are pre-approved for your ideal home. But then you make the decision to add a brand-new credit card to liven things up. Error – this seemingly innocuous action could raise suspicions with your lender, who may view you as a riskier borrower because of your higher debt load.
The consequences? Your mortgage process could be delayed or even derailed as the lender re-evaluates your application. Additionally, opening a new credit line can temporarily ding your credit score potentially leading to higher interest rates or even loan denial.
2. Big Purchases? Hold Your Horses!
Let’s be real, furnishing your new abode is tempting. Hold on, though, because using your credit card to make sizable purchases while escrow is still open may cause problems with your lender. They may be concerned about your capacity to manage the extra financial obligations, which could cause delays or possibly put your loan approval in jeopardy.
Remember, large purchases can negatively impact your credit utilization rate, which in turn affects your credit score. Play it safe and postpone those big-ticket items until after closing.
3. Job Changes: Proceed with Caution
During the mortgage process, your income and employment are meticulously verified to ensure you can handle the monthly payments. So, if you decide to switch jobs or quit altogether while in escrow, things can get a little dicey.
The lender might need to re-verify your income and reassess your application, potentially causing delays. In worst-case scenarios, if your new income falls short of the initial requirements, your loan approval could be revoked.
4. Ignoring Your Closing Schedule: A Recipe for Chaos
The closing process involves a complex dance of deadlines and paperwork. There’s a lot to juggle, from submitting bank statements and pay stubs to getting an appraisal and getting insurance. Ignoring your closing date may cause delays, chances to be lost, and even possible financial losses.
To avoid this pitfall, request a detailed checklist from your loan officer and real estate agent, outlining all deadlines and requirements. Ensure you have your down payment and closing costs readily available to avoid any last-minute scrambling. Remember, failing to complete tasks on time can delay closing, cost you a lower interest rate, or even force you to start the entire process from scratch.
5. Forgetting to Pay Bills: A Credit Score Killer
Amidst the whirlwind of home buying, it’s easy to overlook mundane tasks like paying bills. However, neglecting your bills can have dire consequences for your credit score, potentially jeopardizing your mortgage closing.
Your credit score can be severely impacted by missing or late payments, which can make it more difficult to get approved for a loan or result in higher interest rates. Set up automatic bill payments or note due dates on your calendar to avoid falling victim to this trap.
Remember:
- Stay Credit-Conscious: Avoid opening new credit lines or making large purchases while in escrow.
- Job Changes: Tread Carefully: If you must change jobs, ensure your new income meets the lender’s requirements.
- Stay Organized: Follow your closing schedule diligently and meet all deadlines.
- Pay Your Bills on Time: Avoid missed or late payments that can hurt your credit score.
By using these pointers, you can make the most of your mortgage closing experience and steer clear of expensive blunders that could cause your dream of homeownership to be delayed or even derailed.
How Would Purchasing Items Impact Your Loan Approval Chances?
Your mortgage lender will review your financial credentials before pre-approving and closing your loan. Therefore, when your lender does a check, it will appear in your credit report if you use your credit card to make purchases for your home prior to loan closing.
Additionally, a large credit card balance will have an effect on your credit utilization ratio, which determines how much credit is used relative to how much is available, which will have an effect on your credit score. A high credit utilization ratio is a red flag that will make lenders consider you a risky customer.
Your credit card company will also report your new minimum payment based on your credit card balance. This will probably have an effect on your debt-to-income (DTI) ratio, which shows how much you owe in comparison to your income. The DTI ratio is typically taken into consideration by mortgage lenders when making the decision of whether or not to approve your loan.
You have less chance of getting a loan from your lender if your credit score is lower and your DTI ratio is higher.
Tips to Prevent Closing Delays on Your Home Loan
Follow these tips to get your home loan approved without any delays:
- Wait until your loan is finalized before using your credit card to make any purchases.
- Review your credit card mistakes. If a business reported your payment as late or mismatched your information with others, errors could have happened. In that instance, routinely examining credit cards will assist in detecting and resolving these problems in advance.
- Don’t apply for any new loans.
- Pay off your credit cards on time to keep your credit score high.
Applying for a mortgage loan and getting approved is not always a smooth process. However, these tips will help ensure your home loan closes on time.
Last Minute Credit Check Before Closing. Yes, This is Real!
FAQ
Can I use my credit card before closing date?
Can you use existing credit cards when buying a house?
Do lenders pull credit day of closing?
Do they check your credit after closing on a house?
Should you buy a new credit card before a home loan closes?
As you count down the days until your closing, you may be tempted to make big purchases or apply for new cards because you think they won’t affect your credit scores or DTI until after your home loan closes. That thinking could prove risky because real estate closings are often delayed for various reasons.
Should you max out a credit card before closing on a home loan?
Maxing out a credit card is one of the worst things you can do before closing on a home loan. “The extra debt payment amount will offset your income and result in you qualifying for less mortgage financing,” Washington says. “It will also lower your credit score, which could increase the cost of your loan.”
Can I use my credit cards during a home loan application?
Homebuyers are well-advised to be mindful of their credit usage when applying for a home loan and waiting for it to close. But does that mean you can’t use your credit cards at all during this time? Not exactly.
Should you take out a new credit card before closing?
To that end, try to refrain from making major charges on your credit cards or taking out new credit as it could disrupt the mortgage approval process. Lenders check your credit before closing to ensure your financial situation hasn’t significantly changed since your initial home loan preapproval.