We were recently reminded of how easily a buyer’s dream of home ownership can come to an abrupt end if they are not careful with how and when they spend their dollars. If all things are equal what should be bought first.. the ring or the house?
A young couple was ready to purchase their first home in Naples and was thrilled when we found “the house”. Their financing was squared away and everything was running smoothly until I received a call one evening from the buyer. He reluctantly mentioned how he had decided the previous week to buy an engagement ring and propose to his girlfriend. The purchase of the ring skewed his debt to income ratio just far enough to disqualify him from this previously approved home loan. His heart was in the right place but this recent pricy purchase gave all of us sweaty palms.
In the end the buyer had to make some alternate arrangements that enabled him to obtain the mortgage and the couple purchased their first home. It is critical that homebuyers at all price points be aware that their purchasing patterns will be scrutinized by their lenders and underwrites throughout the mortgage acquisition process.
Rich Bright, President of Park Shore Mortgage Corp recently spoke to us regarding the nuances surrounding home lending;
Aside from buying an engagement ring, what other types of purchases should buyers avoid once they have been pre-approved for a loan?
Rick Bright: Once you have been pre-qualified for a mortgage, you should avoid opening new credit accounts. Do not finance a new car, furniture, appliances, or other financed items without talking to your loan originator first. This could potentially lower your credit scores or cause you to no longer qualify for a loan because your debts to income ratios have exceeded the lenders underwriting guidelines. When your loan originator pre-qualified you for a mortgage, he had to review your credit report, income and job stability, and verified sufficient assets to close on a property. If any of those items have changed, it might affect your chances for financing a new home.
What sorts of things can buyers do to improve their credit rating?
Rick Bright: The best way to improve your credit rating is to make sure all of your monthly payments are always paid on time and as agreed. Try to keep your balances under 30% of their credit limit. If you are renting from an individual, always be sure to make payments with a certified check or personal check, but make sure to keep copies of your certified checks or cancelled checks once they have cleared your bank account because the lender may use this as an alternative for your credit history. Recently, a lot of people had to sell their home through a short sale, which can really damage their credit. The best way for them to try and re-establish their credit, is to open a few secured credit cards or any other type of credit, as long as the company reports to the credit bureaus. After a few years of on time payments, they should talk to a loan originator about trying to qualify for a mortgage.
Once a buyer has been pre-approved how many more times can a buyers credit be reviewed before the day of closing?
Rick Bright: There have been a lot of fraudulent loans in the past, so the lender will pull the applicants credit to make sure it is an accurate report and they may pull it again just right before closing to make sure they haven’t applied for any other monthly obligations.
How long after a buyer has purchased a home can they look to make large ticket purchases?
Rick Bright: After they have closed on their home, they can do as they wish because then the lender had verified all monthly debt before closing on their loan.