You've decided to purchase a home. Maybe this is your first home, maybe it's your seventh home; regardless, there are certain things you should do and not do around the time that you apply for a home loan and put an offer down on a property. One of those things is to buy large ticket items. It can be difficult to do so however, especially if you are already in the market for things like a car, a large piece of furniture or other items that you have to resist and tell your deal closes.
When you play for a home loan the lender and underwriters look at all of your finances at the time you apply. The look at your credit history, tax history, income, debts and liabilities. They will base the amount that you can afford on what your current financial situation is. If that situation changes or you take on more debt, use a large amount of money that you might have in your savings account or other big purchases, it can drastically affect how much home you can afford and maybe even your interest rate.
Think of it this way; if you currently can afford a $1500 a month mortgage but then in the meantime you go and purchase a car and add another $400 to your monthly debt, lenders will probably assume you can only afford an $1100 a month mortgage as that additional $400 is now going towards the car payment. The last thing you would want is for your financing contingency to fall through right before you close on your home. This is why when you place an offer on a house nothing in your financial history should change between the offer and closing time.
But what if you already have the money?
Lenders also look at how much you have in the bank. They will address the situation if that amount goes down drastically. Now, if you have $40,000 in savings and you decide to spend $1000 on a new piece of furniture, it probably won't make that big of a deal. But, if you only have $3000 in savings and you spend $1000 on something, that drastically changes the percentage of money you had in the account versus what you have now. Lenders will look at your overall spending to see if you are responsible steward of your money. If you are frivolously spending or you've applied for a lot of loans in the last few months, lenders may be hesitant to give you a home loan. Also, if you spend a lot of money after you've applied for a home loan but before you close on that home loan, lenders may be hesitant to finalize the financing contingency.
Bottom line is you don't want to do anything that will negatively affect your income or your outgo during the time that you've applied for the home loan versus when you actually close. If you gain more money or you've earned extra money and you put more money away, this won't negatively affect your finances. It's only if you take on more debt or make a large purchase with money that might be stretching your budget.
For more information feel free to contact our preferred lender or if you have more questions about real estate purchases give us a call at any time.