Although it may be tempting to purchase big-ticket items when you buy a new home, there are several reasons not to splurge – especially between the time your home loan is approved and the day of your actual closing. This article from Daniel Goldstein of MarketWatch highlights some big mistakes to avoid before you get the keys to your new home.
The loan is approved, the contract is signed, the title is clean, the closing date is set, and everything seems on track to get that home.
And then some people do the unthinkable that costs them their dream home.
“I’ve had clients call me and say they’ve quit their job, or bought a new car,” just before close, says Mark Livingstone, a mortgage broker with Cornerstone First Financial in Washington, D.C. “All I can do say “what were you thinking? I’ve seen a number of deals fall through that way.”
It’s tempting to splurge just before you buy a home. After all, you’ve probably got big-ticket items to buy like a washer and dryer, or a lawn mower, or new furniture, or bedding. And you’ve probably paid down your other credit cards and paid off car loans and otherwise cleaned up anything bad on your credit ahead of applying for a mortgage. Now there’s a store offering you a $10,000 line of credit for furniture with no payments for a year so you can fill your new house?
Don’t do it. At least, not before you close.
“Banks are going to question almost any meaningful transaction you make while you’re applying for a mortgage,” says Douglas Boneparth, a financial planner in New York City. “So, until you close and the keys are in your hands, you are under the magnifying glass,” he says.
There’s one thing most people don’t understand in the home-purchasing process: Their credit is monitored, right up to the day they sign the contract says Tom Wind, executive vice president of home lending for EverBank in Jacksonville, Fla. “When people think they’re approved [they also think] they’re done,” he says. “They’re not done until the loan closes,” he said.
Take, for example, the furniture store line of credit. It doesn’t matter if you aren’t making payments yet on the $10,000 of furniture you just bought, Wind says, because the bank assumes you’ll be making a monthly payment straight from the start, which will likely throw off your debt-to-income ratio.
If you need new furniture to fill your house, consider renting for a few months. There’s often no hard credit check and given that your store-bought furniture will likely take several weeks or months to be delivered, and it can be a more cost-effective option.
Car leases can also trip up potential homebuyers, because the bank treats the lease payments like any other debt payment and the lease includes a hard credit check, says Sabine Schoenberg, a realtor in Greenwich, Conn. “Anything that might gobble up cash is money you should have in your account,” she says.
Even if you avoid the temptation to splurge before the close, another frequent hiccup occurs when home buyers switch jobs at the last minute, Wind says.
