This blog was written for home buyers especially the ones who are bound to close very soon. With Black Friday less than 25 hours away,we need to remind our clients that if they are going to buy something USE CASH AND NOT THE CREDIT CARD. Happy Thanksgiving to everyone.
Buyer's SPENDING SPREE! Bring em to a screeching halt! Before BLACK FRIDAY! OR, that pre-approval you have on their HOME LOAN, may go up in smoke as Santa comes down the chimney with the gifts!
This Friday will be the beginning of Holiday Shopping for most families. This is also the time of year when CREDIT CARDS get maxed out. This can be VERY DETRIMENTAL to the home loan your buyers just applied for.
Sure they have PRE-approval, Their debt-to-income ratio has been determined, they have their down-payment set safely aside, they know how much they can afford for their monthly house payment. Everything is good to go... OR IS IT???
In this economy lenders are being more thorough than ever. Checking and double checking the status of their clients during the processing of their loan. Underwriters are rechecking credit reports right up until closing to make sure the buyer still qualifies for the loan. The lender has run a final credit check just prior to closing and discovered some new entries.....The credit cards your Buyers just maxed out on their HOLIDAY SHOPPING SPREE! Or...the NEW CAR they bought themselves for Christmas!
Now EVERYTHING CHANGES! Their debt-to-income ratio no longer qualifies them for the loan they need to buy the home. They either need to come up with a larger down payment OR...(I know this hurts) choose a different house at a LOWER PRICE!
For every $100 your buyer is spending on BILL payments (credit cards, car loans, etc.) They lose approximately $10,000 in home loan eligibility. So if they just added on $200.00 per month in Credit Card debt they now qualify for $20,000 less on their home loan!
Most buyers do not realize this or even think about it. As Real Estate Professionals it is very important to educate your buyers early in the home shopping process. Inform them to NOT MAKE ANY CHANGES such as Applying for Credit Cards, ADDING NEW DEBT, or even Co-Signing a loan for someone else, as this will change their debt-to-income ratio and thus the amount of the loan they can qualify for.
Other Important tips:
- CANCEL/CLOSE any OPEN inactive Credit Card accounts. Even with a zero balance, a credit card with a $5,000 limit can be considered by the lender as potential future debt.
- Make sure they keep their current bills up-to-date and have no delinquencies during the loan process.
- Don't make any drastic changes in employment during the loan process. (Except: Take that RAISE!)
- Don't apply for, or change personal lines of credit.
- Do not apply for, accept or obtain any new credit cards, including credit card accounts at retail or discount stores, gas stations or grocery stores.
- Don't increase your available balance on existing credit cards
I'm a NEWBIE on ActiveRain and would LOVE to have your comments. Thank You!!!