Buying a house in the Sacramento area? STOP and don't buy anything else until escrow closes!

A couple of days ago I wrote a blog post explaining the difference between a buyer who is pre-approved and one who is merely pre-qualified, and why a buyer should get pre-approved before house hunting.

Another extremely important issue can affect whether or not the buyer will be able to close the transaction. Once you have been pre-approved for a loan, DO NOT buy anything! If you make any purchase that might have to be financed or one that reduces the amount in your savings accounts, even if you think you can afford it, STOP before making the purchase and check with your lender.

Here is why. If you look carefully at your pre-approval letter, it will contain language such as "if circumstances remain unchanged" or "if the financial condition of buyer remains the same at scheduled close of escrow as it is today" or something similar.

You should realize that before pre-approving you for your loan, many factors were considered, including the amount of your debt-to-income ratio, your cash balances in banks, and your payment history as reflected in your credit report.

At the very end of the escrow period, just before close, those factors will be reviewed again. If there has been a change, you might find to your horror that you can no longer be approved for that loan, and you cannot close escrow and buy the house you wanted.

I always warn my Sacramento area buyer clients about this, and remind them several times during the house hunting and during escrow, but every once in awhile a client gets starry-eyed about the excitement of buying a home he loves and he forgets my advice.

My heart falls when a buyer tells me during escrow that he is going to save money on moving expenses because he just bought a new truck. He thinks that since he is saving money, it iwll make no difference. Wrong. The credit review considers past expenses, regular monthly expenses, and available cash. It does not, as a rule, consider one-time expenses such as moving in determining your creditworthiness.

Your lender might helpfully remind you that you will have expenses other than the purchase price of the house, but there is no way buying a truck can help you, but it most certainly can hurt you.

The same goes for buying a couch or other piece of furniture. I got an excited call from one buyer who informed me that since her new home was so much larger than her tiny apartment, she could finally buy the sectional sofa that she wanted.

She put a deposit on it and said her first payment wouldn't be due until after close of escrow, and it wouldn't be delived until then. I had to bust her balloon by asking her to call her lender immediately, and it turned out that unless she could get her deposit back and cancel the purchase, she could not buy the home she loved.

Luckily, the furniture store allowed her to do that, she closed escrow and waited a few months until she knew what her new monthly expenses would be. Then she went back to the store and bought the sectional on different terms that lowered her monthly payment on it.

So please, once you're pre-approved, DO NOT buy anything until after you have checked with your lender. Otherwise, that great Sacramento area home you love might be lost and you will have to start all over to find a different home to buy.