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Hold Off On That Big Purchase

Written by Cameron Odom

Jul 28, 2021
Charlotte Mortgage Tips Rosegate

By now, you probably know that buying a house can be a stretching experience, especially in the absence of the right information. After all, more than one-third of Americans consider it the most nerve-racking part of their current lives. Now, if you are a first-time homebuyer, the process may be more complex. In 2020, over thirty percent of homebuyers were first-timers. Inherently, they were prone to several mistakes, including choosing the wrong lender, being affected by the market’s current state, getting the wrong kind of mortgage, or even delaying their mortgage loan by increasing their debt right before closing. Of course, someone who knows the market well can make the most of these factors. However, they could and would affect a first time home buyer without the right guidance.

Big Purchases: The Biggest Mistake Homebuyers Can Make

While other errors can be easily avoided, the most common type of mistake homebuyers make is big purchases, or in other words, increasing their credit accumulation just before closing on a mortgage loan. 

As often advised, there’s a high chance you’ve cleared your credit cards and paid off other loans that would’ve hindered your mortgage process. However, millions of homebuyers still make the same mistakes even after this period. Research conducted by TransUnion TRU found that consumers’ credit card spending on average doubles, just before buying a new home. Understandably, the urge to get the latest furnishings and update your home with modern house equipment grows as you get closer to acquiring your dream home. But homebuyers are not often aware that their credit cards are monitored by the bank to the day the contract is signed. It’s important to realize that these big purchases will affect a home buyer’s closing process and could possibly delay or deny their mortgage loan.

Why Do Banks Care about Your Purchases?

Banks aren’t just infringing on your privacy. It’s all a part of the deal. There’s a high possibility you won’t be making immediate payments for all your new acquisitions, and your debt intimately affects your debt-to-income ratio (DTI, i.e., your monthly payments compared to your monthly income). Lenders or banks always want to see if your monthly payment is less than 43% of your pre-tax income. Since financing your new home equipment may lead to a corresponding increase in your DTI, lenders are tempted to return to the deal, whether to delay or in extreme cases, deny the mortgage loan.

Is Cash Payment a Viable Option?

Not opening a new credit account makes cash payment appear to be a viable option. However, cash payment for your new big purchases can impact your loan deal as well. It can potentially create a similar effect as opening a credit account. 

After making your down payments and closing costs, part of your loan deal could involve showing two full mortgage payments in cash. This means that any cash spent on big purchases before closing will rub off on your account, bearing in mind that you do not want to exceed the limit needed to approve your loan. Cash payment for large purchases could push you down that limit, and the loan may be extended or the deal terminated.

How Best Do I Get My Desired Equipment?

A preapproval letter doesn’t ascertain the conclusion of the process because your lender will keep updating themselves on your financial situation. The best way to know you’re free from such monitoring is when you’ve moved to the new home. However, you may also consider renting your desired equipment at least until the mortgage is closed and every aspect of the process is signed and finished..

Getting a mortgage loan to acquire your new home is a complex procedure. Keep in mind that any big transactions and purchases, whether financed through credit cards or cash, can and will affect your mortgage loan before closing. You may require the guidance of a mortgage broker, those familiar with the industry, in order to avoid these costly mistakes.

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