I have been working with a couple of clients who are buying homes and who’ve recently asked if it’s okay for them to buy furniture before closing on their new home. It must be all the “Fourth of July blow-out” sales going on that’s causing this question to come up recently.
First of all, I’m so glad they’re asking questions like this. I cannot stress how important it is to communicate with your Loan Officer. It’s no fun when you’ve done things that may seem small, like paying off a debt or buying furniture with delayed financing, only to have it negatively impact your loan or cause you to have to jump through additional hoops.
I know that waiting to buy your brand new furniture until after you have closed on your home may be an inconvenience…but here is why I often provide this advice:
- Credit is re-verified prior to closing. This may take place the day of closing or the day before. When new debts are discovered or even if you have higher balances on your existing credit cards than what was disclosed on your initial loan application, your loan may have to go through underwriting again. If the new payment causes your debt to income ratio to exceed what is allowed with your guidelines, you may wind up with new furniture and no new mortgage or new home.
- New debt drops your credit score. New debts tend to drop your credit score. When the lender re-pulls your credit and it’s a “hard” pull vs. a “soft” pull (typically this would be because your existing credit report is set to expire prior to closing), you may be stuck with the new, lower credit score. Lower credit scores may impact the pricing of your mortgage rate as well as qualifying for the new mortgage. Many mortgages have credit score limits and if your score drops below what is allowed, your loan may be denied.
- Inquiries will show on your credit report. If you have applied for credit to finance your new awesome sectional with reclining seats and a built in min-bar, an inquiry will show up on your credit report and you may have the pleasure of writing a “letter of explanation” to the lender to address whether or not you have obtained new credit.
- Paying cash may not be the answer. If you pay cash or borrow money from Aunt Edna, you may still have to document were the cash came from and the loan or gift from Aunt Edna. If you tap into your own savings, you need to make sure that your Loan Officer is not counting on those savings to be used for “reserves at closing”.
After you close on your new home, you can buy your awesome new furniture and your lender will have nothing to say about it… unless you invite them to your house warming and at that point, they’ll probably just compliment you on your good taste and how nice your home looks. Although it’s an inconvenience to delay getting your new furniture, in my opinion, it’s typically not worth the risk.
Please do ask your Loan Officer first, it is possible that it may be acceptable and it may not jeopardize your application. It never hurts to ask!