Have you started house hunting? That's great!
It can be a super fun process, but when you start looking avoid big purchases when applying for a home loan. While you might think that you're in the clear once your initial credit check clears, you aren't. A pre-approval doesn't mean that you are guaranteed a mortgage, it can be denied at any time in the process.
Your lender keeps track of your finances until the loan is completely closed. This means they watch your income, credit score, assets, and other financial information. But, don't let this scare you! Just try to be conservative in your spending until your loan is completely processed.
Why No Big Purchases?
There is a lot of things banks and lenders look at, but large purchases can drastically affect your credit score and your debt-to-income ratio. Those items are some of the main factors in lending. Opening new lines of credit and obtaining extra loans can drop your credit score. If that happens it could cost you some great interest rates.
What is Considered a Big Purchase?
This all depends on your financial situation. A new car might not even be a drop in the bucket to a famous actor/actress who is worth millions, but to the average Joe, that would be a big purchase. Sometimes, even new appliances and furniture for your home will affect your loan process. So, just be mindful of what you're spending before loan closing time. If you have questions about what you can spend without affecting your loan, ask your loan officer. They will be able to give you a better idea of how much will affect your finances.
What About Cash?
Cash is a great option if you've got it and you can use it for a necessity before your closing. However, if you've got cash in the bank to use for closing costs don't spend it all. If you've got cash to cover your downpayment, closing costs, and a little reserve for closing time, go ahead and use the extra.
Other Things That Affect Loans
Big purchases aren't the only things that can affect your loan amount and rate, here are a few other things to keep in mind.
- Don't quit and get a new job
- No new credit cards
- No new cars or trade-ins
- Don't forget to pay your bills on time
- Don't transfer large sums of money between accounts
- Avoid undocumented deposits into your bank account
Again, if you've got something coming up before your closing, it is best to discuss it with your lender or avoid big purchases when applying for a home loan. They can figure out how you can manage it without it affecting your rate or loan amount. If you're looking to get a great realtor to help you with the local market, contact us! We'd be happy to help you find the home you're looking for.