So, you’d like to buy a home in Orem, Utah, and you plan to apply for a mortgage. You’re aware that lenders will thoroughly examine your financial situation to ensure you’re able to afford a home loan. But did you realize that buying a big-ticket item at this time could be problematic?
You may need furniture for the new place, or perhaps you’d like to replace the water heater, but major purchases like these may need to wait. Whether you’re looking into an FHA loan, VA loan, conventional mortgage or any other type of financing, you don’t want anything to get in the way of your path to homeownership – and spending a large sum of money right now could impact your ability to get a mortgage.
At Intercap Lending, you can count on us to guide you through every step of the borrowing process, but for now, here’s what our mortgage experts have to say about buying anything expensive during the underwriting process.
Why Major Purchases Can Be a Problem
When a mortgage lender approves your home loan application, they’ll use a snapshot of your financial situation as the basis of their decision. Any changes could lead to you no longer qualifying for the home loan.
If you make a major purchase, you may drain your cash reserves or throw off your debt-to-income ratio (DTI), the comparison of your monthly debts to how much you earn. Lenders may see this as a problem, as either way, you’ll have less money that can go toward a mortgage. Consequently, the deal could fall through.
Paying in Cash May Not be a Solution
If you have the cash, you could furnish your home or get that new water heater installed without affecting your credit utilization – and since you won’t be using a credit card, it won’t matter in terms of your mortgage. Right?
Not necessarily. Using cash to cover the expense may mean you won’t have enough liquid funds to meet your mortgage lender’s post-closing requirements. You might need anywhere from two months’ to a year’s worth of home loan payments in cash reserves, and if you don’t have the amount your lender specifies, they may pull the plug.
When You Can Make Major Purchases
Whether you pay for a pricey item in cash or charge a large amount on your credit card, doing so during the underwriting process will raise a red flag. At this stage, mortgage lenders don’t like to see an increase in debt or a decrease in cash reserves.
Waiting until after closing to make a big purchase is wise, as that way, you won’t have to worry about it appearing on your credit report or not having enough cash on hand to satisfy your mortgage lender. If you absolutely can’t wait – your car brakes are in bad shape, for example, or your refrigerator died and you really need a replacement – talk to the mortgage experts at Intercap Lending. If we know about any major purchases you have on the horizon, we can offer advice on how to handle the situation.
For more information, or to learn about our mortgage company services for homebuyers in Orem, Utah, contact us today.