The excitement of purchasing your first home is thrilling! You’ve found the perfect place, signed the contract, and are counting down the days until you can move in. While it’s tempting to start buying new furniture, appliances, and all those home essentials, now is not the time to make big purchases—especially before your closing date.
Why? If you follow my Instagram account, you might have already seen my video on this, but in case you haven’t, I’ll break it down here. Waiting to make those purchases isn’t just smarter—it can save you from last-minute surprises with your mortgage lender.
1. New Purchases Could Impact Your Credit Score
When you apply for a mortgage, lenders carefully review your credit score to determine your eligibility and loan terms. Any significant changes to your credit profile during the home-buying process, like large purchases, can raise red flags.
Here’s how it works:
- When you make a large purchase on a credit card or take out a loan, it increases your credit utilization rate.
- This could cause your credit score to drop. A lower credit score might affect your mortgage rate or even jeopardize your loan approval.
- Even if you’ve been pre-approved, lenders often perform a final financial check before closing. If your credit score has dipped or your debt-to-income ratio has changed, your financing could be delayed—or worse, denied.
2. Changing Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is another critical factor for mortgage approval. This ratio compares your monthly debt payments to your monthly income. If you finance furniture or appliances before closing, your DTI increases, which could make you seem riskier to lenders.
Even a seemingly small purchase—like a new washer, dryer, or dining set—can push your DTI above the lender’s acceptable limit. This puts your loan at risk and could complicate the entire home-buying process.
3. Documentation of Large Transactions
It’s not just about credit or financing purchases. Even if you pay cash for furniture or appliances, your mortgage lender may still require documentation for any large transactions in your bank account.
I once had a client moving from a farm to an urban area who sold a tractor. The lender required proof of where the deposit came from before approving the mortgage. Whether it’s a deposit from a sale, a gift from a relative, or your savings, large financial transactions could trigger additional lender scrutiny.
4. Delays in Closing
Big purchases or unexplained financial changes could lead to delays in closing. If the lender flags new debt or large transactions, they might ask for additional documentation or reevaluate your financials, pushing back your closing date.
Since mortgage rates can fluctuate, delays could result in a higher interest rate by the time you close—adding long-term costs to your home purchase.
5. You’ve Already Budgeted for Your New Home
Chances are, you’ve carefully budgeted for your home purchase and the expenses that come afterward. Making large purchases before closing could throw your budget off balance. Waiting until after closing allows you to:
- Reassess your financial situation with a clear picture of your remaining funds.
- Avoid unexpected costs and maintain your financial cushion for home repairs or upgrades.
6. You’ll Have Plenty of Time to Shop After Closing
While it’s hard to resist buying that shiny new fridge or the perfect sectional couch, waiting until after closing gives you peace of mind and financial freedom. Once you’ve closed, you can:
- Know exactly how much you can afford without jeopardizing your mortgage.
- Take advantage of sales or furnish your home gradually, ensuring you prioritize essentials.
What Should You Do Instead?
- Stay patient: Focus on closing first. Your dream furniture will still be available after the deal is done.
- Plan your purchases: Create a shopping list of essentials and prioritize them for after closing.
- Focus on the details: Dedicate your energy to the final steps of the home-buying process—like inspections, paperwork, and getting your finances in order.
Buying a home is an exciting milestone. By holding off on major purchases until after closing, you can avoid unnecessary stress and start your new chapter on the right financial footing!