No one wants to hear that their closing has been delayed since closing delays are stressful and frustrating. But many delays can also be avoided with education and communication.
When someone is purchasing a new home, they’re often in the middle of other big changes such as a growing family or a new job. But once a loan application has been submitted, homebuyers need to avoid certain changes that can impact their credit and lead to delays in closing.
As a realtor, you can help your client have an amazing, on-time closing. By not only helping them find their dream home but also helping them know what to expect, you can help them avoid these common mistakes that may delay their closing.
Closing on a house is an exciting time, but it can also be stressful trying to get all your ducks in a row One common question homebuyers have is whether they can spend money in the weeks leading up to closing The answer isn’t straightforward — some purchases are fine, while others could jeopardize your mortgage approval. Here’s what you need to know about spending money before closing on a house.
Why Your Spending Matters Before Closing
When you apply for a mortgage, lenders want to see that you’re financially stable. They’ll look at factors like your income, assets, debts, and credit score. If you make major changes to your finances after applying for a loan, it could raise red flags. Lenders will check your credit again right before closing, so you need to avoid anything that could negatively impact your score.
You also don’t want to pile on new debt obligations that could hurt your debt-to-income ratio. Your DTI compares your total monthly debt payments to your gross monthly income. Most lenders want to see your DTI below 43%. Too much new debt could push you over that threshold.
Finally you need to have cash available for closing costs, which average 3-4% of the mortgage amount. Tapping into your savings to make other big purchases could leave you short on cash for closing.
7 Things You Shouldn’t Buy Before Closing
To avoid headaches with your lender, hold off on the following until after you close:
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Furniture or appliances: Financing large purchases could increase your DTI. Even if you pay in cash, it eats into funds for closing.
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Electronics: Televisions, computers, and other expensive electronics are not worth risking your mortgage approval over.
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New vehicle: Car loans add debt and an ongoing payment that factors into your DTI.
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Boat, RV, or trailer: These recreational vehicles often require financing that lenders may not approve.
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Jewelry: An engagement ring or other expensive jewelry purchase can raise questions about where the money came from.
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Home improvements or renovations: Wait until after closing to upgrade appliances, flooring, etc.
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Vacation: That dream trip will have to wait. Don’t tap savings earmarked for closing.
What About Regular Bills and Expenses?
You don’t need to halt all spending in the weeks before closing. Making regular payments on existing debts and covering routine household expenses is fine. Here are some things you can safely continue to spend money on:
- Mortgage or rent
- Car payment
- Insurance premiums
- Utilities
- Cell phone bill
- Groceries and household items
- Gas and transportation
- Restaurants and entertainment (in moderation)
- Existing loan and credit card payments (as long as you pay on time)
Tips for Smart Spending Before Closing
Here are a few things to keep in mind about spending money leading up to your closing date:
- Avoid new lines of credit or loans that require a hard credit check.
- Don’t let current accounts fall behind or go delinquent.
- Try to lower credit card balances rather than increase them.
- Make any large deposits well in advance and be prepared to document sources.
- Talk to your lender before making unusual large purchases.
- Wait to buy furniture or make home upgrades until after closing.
- Pay all regular monthly bills on time to avoid credit damage.
- Track closing costs and keep cash handy as your closing date nears.
The weeks before closing require financial discipline. Avoiding major new purchases or debts ensures the process goes smoothly. Once you get the keys, you can spend freely on furniture, renovations, and celebrating your new home. But until then, be selective about where your money goes to avoid derailing your mortgage.
Mistake #3: Making Another Big Purchase
When buying a home, there are often other big purchases that go along with it such as furniture and appliances. But homebuyers should avoid making big purchases after they’ve submitted their loan application.
What is a big purchase? A big purchase is anything that’s outside normal spending. So a homebuyer can still buy groceries, make car payments, pay for their yard service, and go to restaurants. The mortgage lender will, however, flag any unusually large expenses. Lenders are looking for financial stability, so they’ll be evaluating financial records both when the loan application is submitted and a few days prior to closing.
Homebuyers should avoid using large amounts of cash or credit while waiting to close. While adding debt is always a bad idea during this time, many homebuyers are surprised to learn that even large cash purchases can impact their loan application. Cash purchases can also potentially eat into funds earmarked for closing costs.
Advise your client to check with their lender before making any kind of large purchase. While they don’t need to go on a spending freeze, their lender can provide guidelines specific to their financial situation. After their mortgage loan closes, clients can spend money however they’d like – as long as they’re still able to make their mortgage payments.
Mistake #1: Changing Marital Status
Everyone applying for a mortgage loan must disclose their marital status. While buyers may not feel like their marital status is relevant, this information gives mortgage lenders a complete picture of the applicant’s financial situation. A change in marital status will completely change the loan application for an individual – even if the individual isn’t adding the spouse to the loan.
It’s not uncommon for an engaged couple to want to purchase a new home together to live in after they get married. If this is your client’s situation, ensure that they communicate this information to their lender when they submit their loan application. Once that loan application has been filed, a buyer’s marital status needs to stay stable – no last-minute Vegas weddings allowed.
But this advice isn’t just for newlyweds: divorce will also impact the status of a loan application since divorce can cause an individual’s credit score to drop. Sellers who are in the process of getting a divorce should also avoid finalizing their divorce while under contract.
Alabama law states that individuals are either married or they’re not: there’s no in-between status. If you’re engaged to be married, you’re single. If you’re separated but not divorced, then you’re still married. A buyer’s failure to accurately disclose their marital status at any point during the closing process can delay or even halt the transaction.
Cash Buyers | 3 Things to do before Closing
FAQ
Can I spend money before closing on a house?
Making Expensive Purchases
While it might be tempting to buy furniture or appliances on credit for your new home before you close, it’s best to avoid racking up significant charges before closing day passes.
What shouldn’t you do before closing?
- Avoid Applying for Other Loans. …
- Avoid Late Payments. …
- Avoid Purchasing Big-Ticket Items. …
- Avoiding Closing Lines of Credit and Making Large Cash Deposits. …
- Avoid Changing Your Job. …
- Avoid Other Big Financial Changes. …
- Keep Your Lender Informed of Inevitable Life Changes.
Can I spend money on my closing date?
Yes, you can use your credit card between the due date and the credit card statement closing date. Purchases made after your credit card due date are simply included in the next billing statement.
Can I make a large cash purchase before closing?
Big flags to mortgage companies include purchases that impact your debt-to-income ratio and credit score, such as large purchases that have to be paid off over time like a car or furniture for your new home. But the warning to not make big purchases prior to closing extends to cash purchases, as well.