Buying a first home is an exciting time. There are so many
things that have to be arranged and purchased besides the home like home owners
insurance, utilities, cable, internet, moving truck rentals and furniture. There
is one common theme in all of these arrangements, money. Everything is going to
cost something and quite possibly, require a look at your credit.
But this should be no big deal, right? You found the home, wrote the offer, it has been excepted and
were pre-approved for the purchase, so now you are good to go. You don’t have to
worry about that silly credit score or credit ratio the loan officer had you so uptight about anymore, right? WRONG!
Many first time home buyers forget that as a stipulation for
the loan, a credit report can be pulled right up to closing to make sure there
are no new debts. This means,don’t open any new lines of credit or you could
find yourself without a home.
Recently, a young client of mine had to sweat out the last
few days before closing due to the purchase of a couch. He was excited about
his first home and really didn’t have a couch to sit on….and there was a HUGE sale at a local furniture store.
Had he used the credit card he already had in his wallet, there wouldn’t have been an issue.
But the salesperson at the furniture store encouraged him to "get a better deal"
with a new store card. But furniture salespeople do not know whether or not this great little card will affect your credit score...they just get a bonus every time someone signs up. That "deal" came with a new line of credit that could have cost my buyer
the house. Fortunately, he didn’t have Cadillac tastes and his furniture purchase and the accompanying line of credit was
somewhat reasonable.
But the story didn't end there. Upon realizing his mistake of opening a card before his
home closing, my buyer tried to “fix” the situation by
transferring the charge from the new furniture card to his existing credit card
account. This actually makes things worse. FICO scores can be affected negatively when a credit card is used to pay off another card.
About a week before closing, I received a text from my
client about this little “couch ouch”. He was completing the paperwork for
final approval and there was “the” question, “Have you opened any new lines of
credit?” He wanted to know how to answer it and told me about the new couch (and
credit card that it came with). Now, he was wondering if he should borrow money
from his parents to pay off the card or return the couch. What was going to fix
the situation and still allow him to purchase the home?
Okay, I’m not a loan officer but Ido know there has to be a
paper trail for any funds coming into accounts right before a closing too. They
will pull the bank statement and every big deposit will need to be explained. Plus
it will not negate the new line of credit. I told him, “Call your loan officer
asap!”
The good news for my client was his mistake was small price-wise and
didn’t prevent his home purchase. Had he obtained credit for new appliances, hardwood floors or a car, there might have been a different outcome. However, the situation did cause him some needless worry a
few days before the closing. Sharing the story is a good lesson for others. Remember per-approval isn’t the same as final approval on a loan. Your credit and income
will remain under the scrutiny of the underwriter until closing.
My mother always told me, there is always another sale. So be patient and resist the urge to splurge on a new couch, carpeting or appliances before you sign the final papers on the purchase of your home.
IMPORTANT REMINDERS
- Don’t take out new lines of credit. If they ask for your social security number it will most likely cause a tick on your report.
- Be prepared to explain any large influx of cash into your bank account, if you receive a gift or unexpected payment of any kind.
- Don’t quit your job or reduce your hours. Your income will be verified right before the closing.
- When in doubt, call your loan officer. They would rather answer a call now than give you news later than you no longer qualify for the loan.
- There will ALWAYS be another sale. Try to shop after your closing not before!
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