Buying A Home? Don't Rack Up Debt Between Approval And Closing

Don’t open any new lines of credit or go crazy with the credit card purchases between your home loan’s approval and the actual closing date, warns Ilyce R. Glink (doesn’t it look like we just tapped a bunch of keys at random to spell that name?) at Inman Real Estate News. Your lender will pull a second credit report before closing to make sure that you’re still capable of paying your loan—so if you’ve done anything in the interim that could impact your ability to pay, rest assured it will show up.

This sounds like common sense, but it happens more than you’d expect. Back in college, I worked at a mortgage company helping loan officers prepare all the paperwork that goes into approving a home loan. Every month there was some mini-disaster from an overenthusiastic couple who screwed up their debt-to-income ratio with a huge furniture or car purchase before closing—we often had to send them scrambling for new sources of income, gifts to increase their down payments, and/or co-signers, or adjust the loan agreement to something less favorable to them in order to get the numbers right for re-approval.

Glink points out that you shouldn’t be spending all that extra money in the first place, at least not until you’ve settled into your home and absorbed any unexpected additional costs:

“Homes have ongoing maintenance issues and need repairs from time to time. If you start spending like mad and don’t put any cash aside for needed repairs, you may discover that your new home is unaffordable. If, however, you can make do with your old furniture for a while, bank the savings and avoid increasing your credit card debt, you’ll find it easier and more rewarding to be a homeowner.”

“Don’t charge up a storm before buying home” [Inman Real Estate News via AllBusiness]
(Photo: Getty)

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  1. Buran says:

    Hey, where’s the story? Brand-new article and the link doesn’t work…

  2. @Buran: Works now! Sorry ’bout that.

  3. Buran says:

    @Chris Walters: Thanks!

  4. JustRunTheDamnBallBillick. says:

    This is the single biggest reasons why loans fall out at the last minute (assuming rate was locked). If you use a local branch of a lender, or a broker, the lender will almost always pull at the last minute. They also will do a VOE (verification of employment) just prior to issuing the closing docs.

    You would be amazed at the people who take out a second mortgage, or refinance and take cash out, and then quit their jobs. I get it, you are lying to the broker and taking the money out to start a home based business, or go back to school, or whatever, but you have to be moron not to realize that they check those things.

  5. rich815 says:

    “If you use a local branch of a lender…..the lender will almost always pull at the last minute.”

    Um, no. They won’t. I work as a mortgage consultant at a large direct lender bank (one of the top three, let’s just say, in terms of mortgages) and have for over 7 years. When you get your approval/commitment letter it shows the date your credit expires (until we have tp pull and update your credit report). We do not typically need to re-pull credit for 3 months. So yes, if you got approved then took over 3 months until you found a home your credit would be re-pulled. If not then no new credit report is pulled. If you work with a borker maybe….oops, sorry, broker.

  6. BigNutty says:

    A good real estate agent will always tell you this also to make sure they don’t lose a sale.

  7. Charles Duffy says:

    @JustRunTheDamnBallBillick.: Yup. My first attempt at buying a house fell through two days before closing when my employer gave the lender my (pending) termination date before telling me.

    (I’m not upset with that employer for terminating me — I moved out of state and started working remotely without getting their approval ahead of time — but letting the lender know before they put me in the loop was Teh Suck).

  8. ArtDonovansLoveChild. says:

    @BigNutty: I actually encourage the people I train to put simple rules on the backs of their cards. Dont rack up new debt, dont apply multiple places, keep any pay stubs, dont move around money you were planning to use as your down payment (many programs require seasoning), dont change jobs or quit. Sometimes having that visual reminder helps people.

  9. RandomHookup says:

    It drove me nuts when I bought my house having to explain to the mortgage company why I had all this money in the bank. I had to itemize my big bonus from my last employer, the sign-on bonus from my new employer and the difference in my salary from one to the other, not to mention the fact that I was saving money to buy a house!!! All of this was 6 months after the money went into the account. Guess I should have been spending it to show I wasn’t hiding money from my parents to make me look like a good credit risk.

  10. Tracy Ham and Eggs says:

    @RandomHookup: thats just a bad underwriter. Six months should have been more then enough, unless you were really making nothing. Most programs just want 3 to 6 months seasoning.

  11. Landru says:

    Seasoning?

  12. BlondeGrlz says:

    We had a deal fall apart because the buyer was approved for $275,000 and then thought “wow, I’m rich!” and bought a $35,000 truck. Needless to say his new pre-approval was for $230,000. Then he bought a boat. He still rents.

  13. BlondeGrlz says:

    @Landru: I like mesquite or cajun the best.

    Just joking…it means you’ve had the money in one place for a while. To prove your mom didn’t just give you $30,000 temporarily so it looked like you were rich, or that you didn’t empty you 401K to make your bank account look huge and then move it back.

  14. B says:

    Don’t rack up debt before buying a home. Or ever, for that matter.

  15. Nemesis_Enforcer says:

    @rich815: Maybe your company didn’t but ours did, We specialized in Jumbo loans. I remember this dufus who had about $150,000 or so in credit cards and lines of credit open with a very low DTI. I think he might have carried about 3k of balances on all the accounts. Well we instructed him to not go crazy and buy a bunch of stuff. We go to check his credit again about 2 days before he was supposed to sign the docs on a 1.3 million dollar 1st and 2nd. Guess what now he had about 95k worth of debt! He went on a shopping spree and bought a new car and outfitted his whole house with new furniture and plasma tv’s etc. Needless to say he umm didn’t get the loan.

  16. RandomHookup says:

    @Tracy Ham and Eggs: Well, the amount in the bank kept growing since I had gotten a big pay raise, so it’s understandable that the ‘seasoning’ aspect may not have been easy to calculate. But it’s irritating to feel you are being punished because you know how to save.

  17. mexifelio says:

    It’s actually better that they do this and not get approved/funded … keeps foreclosure rates just that much more lower.

  18. Tracy Ham and Eggs says:

    @RandomHookup: As I said, thats just an underwriter with a bug up their butt. Worse case, you get a letter saying when you got the raise and you should be fine. Thats 90% of the reason Im glad I am not a broker anymore, underwriters who like the power and make people suffer for fun.