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Couch Ouch—Resist the Urge to Splurge!

By
Real Estate Agent with Boardman Realty Minnesota License#90858

 

Buying a first home is an exciting time. There are so many things that have to be arranged and purchased besides the home like home owners insurance, utilities, cable, internet, moving truck rentals and furniture. There is one common theme in all of these arrangements, money. Everything is going to cost something and quite possibly, require a look at your credit.
 
But this should be no big deal, right? You found the home, wrote the offer, it has been excepted  and were pre-approved for the purchase, so now you are good to go. You don’t have to worry about that silly credit score or credit ratio the loan officer had you so uptight about anymore, right? WRONG!
 
Many first time home buyers forget that as a stipulation for the loan, a credit report can be pulled right up to closing to make sure there are no new debts. This means,don’t open any new lines of credit or you could find yourself without a home.
 
Recently, a young client of mine had to sweat out the last few days before closing due to the purchase of a couch. He was excited about his first home and really didn’t have a couch to sit on….and there was a HUGE sale at a local furniture store. 
 
Had he used the credit card he already had in his wallet, there wouldn’t have been an issue. But the salesperson at the furniture store encouraged him to "get a better deal" with a new store card. But furniture salespeople do not know whether or not this great little card will affect your credit score...they just get a bonus every time someone signs up. That "deal" came with a new line of credit that could have cost my buyer the house. Fortunately, he didn’t have Cadillac tastes and his furniture purchase and the accompanying line of credit was somewhat reasonable. 
 
But the story didn't end there. Upon realizing his mistake of opening a card before his home closing,  my buyer tried to “fix” the situation by transferring the charge from the new furniture card to his existing credit card account. This actually makes things worse. FICO scores can be affected negatively when a credit card is used to pay off another card.
 
About a week before closing, I received a text from my client about this little “couch ouch”. He was completing the paperwork for final approval and there was “the” question, “Have you opened any new lines of credit?” He wanted to know how to answer it and told me about the new couch (and credit card that it came with). Now, he was wondering if he should borrow money from his parents to pay off the card or return the couch. What was going to fix the situation and still allow him to purchase the home?
 
Okay, I’m not a loan officer but I do know there has to be a paper trail for any funds coming into accounts right before a closing too. They will pull the bank statement and every big deposit will need to be explained. Plus it will not negate the new line of credit. I told him, “Call your loan officer asap!”
 
The good news for my client was his mistake was small price-wise and didn’t prevent his home purchase. Had he obtained credit for new appliances, hardwood floors or a car, there might have been a different outcome. However, the situation did cause him some needless worry a few days before the closing. Sharing the story is a good lesson for others. Remember per-approval isn’t the same as final approval on a loan. Your credit and income will remain under the scrutiny of the underwriter until closing.
 
My mother always told me, there  is always another sale. So be patient and resist the urge to splurge on a new couch, carpeting or appliances before you sign the final papers on the purchase of your home.
 
IMPORTANT REMINDERS
 
  • Don’t take out new lines of credit. If they ask for your social security number it will most likely cause a tick on your report.
  • Be prepared to explain any large influx of cash into your bank account, if you receive a gift or unexpected payment of any kind.
  • Don’t quit your job or reduce your hours. Your income will be verified right before the closing.
  • When in doubt, call your loan officer. They would rather answer a call now than give you news later than you no longer qualify for the loan.
  • There will ALWAYS be another sale. Try to shop after your closing not before! 

 
Need More Home Buying Tips?

Posted by

Teri Eckholm. REALTOR with Boardman Realty, is a native Minnesotan who has lived and worked in the Minneapolis St Paul metro all of her life. She specializes in lakeshore homes, acreage properties and first time home buyers but assists anyone making a move in the north and east Twin Cities metro.

If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give Teri , a call or visit her website for a FREE Home Buyer Success Guide or FREE Home Value Report She specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District! Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Copyright 2019 terieckholm.com

 

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Comments (9)

Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Teri:  No matter how many times this topic is written about ... it's NOT enough. I just wrote a post about this very topic last week.  The ending wasn't as happy.

This issue pops-up over and over ... even after Lenders and agents have warned buyers not to do anything prior to Closing.  Frustrating ... but articles, such as yours help educate.  And that is where the solution and preventative to this issue must be found ...

Gene

Jul 23, 2013 02:44 AM
Adrian Willanger
206 909-7536 AdrianWillanger-broker.com - Seattle, WA
Profit from my two decades of experience

Teri-this is just a great reminder to buyers to hold off in buying those large purchase that could raise havoc on your credit score. Good stuff. 

Jul 23, 2013 05:20 AM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

This is a biggie. I think every lender should inform their borrowers about this.  So many buyers don't know that they should wait until making any purchases for their new home.  After all it is a huge temptation.

Jul 23, 2013 05:37 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Teri -- as George notes, this cannot be emphasized enough.  Don't know if it because they forget, or just don't think the rules apply to them...  

Jul 23, 2013 05:44 AM
Teri Eckholm
Boardman Realty - White Bear Lake, MN
REALTOR Serving Mpls/St Paul North & East Metro

Gene--Yes, cannot be stressed enough! Buyers get so excited about what they need for a new house, they sometimes forget the deal is not over until it is over.

Adrian--And a change in score could prevent the closing.

Jane--In this case, I talked to the lender and he was told several times but I think in the excitement of what was needed for the home and the big "SALE", he just forgot.

Steven--Over and over and over again...I think some buyers just forget.

Jul 23, 2013 05:57 AM
Kathy Stoltman
Balboa Real Estate - Ventura, CA
Ventura County Real Estate Consultant 805-746-1793

Teri, I know buyers get so excited about their new home and some want to furnish it or buy new appliances, etc. but as you so well point out, they must wait, there is no sale that is worth losing one's dream home over.

Jul 23, 2013 06:58 AM
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

It is my hope that all potential mortgage seekers will read this post!  Good information.

Jul 23, 2013 11:02 AM
Alan Kirkpatrick
Austin Texas Homes - Round Rock, TX
Alan in Austin

Teri:

Very good post and reminder for those in underwriting. Have a great week. 

Jul 23, 2013 11:12 AM
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

I go over this very carefully with every buyer, first timer or seasoned.

I have had several deals that were nixed because of pre closing spending.

Jul 28, 2013 11:14 AM