In the midst of closing on a home, should I really not be making any purchases (furniture)?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
totallynotsure
Posts: 225
Joined: Wed Feb 26, 2020 10:35 am

In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by totallynotsure »

i think the general rule of thumb is to NOT make any type of large purchases as you're closing on a home.

that said, i confirmed with the lender that after the initial credit check they only do one more soft pull before closing is to confirm no new credit accounts have been opened.

further more, i plan to pay off the purchases as soon as they're made and only plan to use my credit card for consumer protection and points.

lastly, given that it's the holiday season, if i wait i'll most certainly be missing the best "deals" of the year.

thus:

1. are you truly using credit/taking on debt if you pay off the purchase immediately? will this impact DTI?
2. if i have in writing that i'm fine to use credit cards (as long as i don't open a new line of credit) from the lender should i be OK?
3. other advice appreciated.

thanks!
BogleZogle___Mogul
Posts: 153
Joined: Tue Nov 24, 2020 10:23 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by BogleZogle___Mogul »

I don't see any issues so long as you know what date they do that last soft pull, make sure you don't have large balances at that point, and also pay off the credit card balance as soon as you make large charges.

Even that is probably a bit cautious but better safe than sorry with a large financial transaction like buying a house. I was similarly cautious with balances and such when we purchased our home. No issues, and it probably wasn't warranted, but there's little downside to the caution.
stan1
Posts: 9558
Joined: Mon Oct 08, 2007 4:35 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by stan1 »

Seems like there's a big "it depends" here.

Are you charging $10K of furniture and you have $500K in annual income and a $1m house?

Or are you charging $50K of furniture and you have $50K in annual income and a $250K house?

Yeah, I'm picking two extremes but that's why I wrote "it depends" on how close to the edge you are. Being this is Bogleheads we don't know if you are an anxious multi-millionaire physician or an ambitious first time home buyer.

There may be some variation based on lender and personal circumstances, but in our case there was additional scrutiny when the loan went to the underwriter and that's when we had to produce a paper trail for all cash flows in the last 3 or 6 months across all accounts. This happened about a week before closing. If you aren't at the edges of the loans you should be fine, you just may need to produce statements to match the cash flows.
User avatar
rocket354
Posts: 399
Joined: Mon Dec 14, 2015 12:31 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by rocket354 »

I'm going through a refi right now. On my list of tasks online, some backend tasks for loan processors inadvertently were visible to me. One of them was "if borrower's DTI increases by 2%, send file back to underwriters to be re-underwritten." So suffice to say that if your debts that would show up on your credit report increase by a certain amount there is some risk involved to your current loan.
123
Posts: 6753
Joined: Fri Oct 12, 2012 3:55 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by 123 »

I would hold off until you close to ensure that you actually have a place to put the purchases unless it's pretty much a certainty that the deal will close (i.e. property is currently vacant, you're paying cash for the house). Some purchases may not work out in an alternate location (i.e. full sized refrigerator in kitchen sized for counter-depth refrigerator). A king-sized bed may not be a suitable fit in all bedrooms.

There is a risk that in the euphoria of a new home purchase you will buy too much furniture. Far better to wait and get stuff with a planned strategy.

Nothing spoils the look or a room faster than too much furniture, less is definitely more.
The closest helping hand is at the end of your own arm.
adamthesmythe
Posts: 3938
Joined: Mon Sep 22, 2014 4:47 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by adamthesmythe »

Why not put a deposit down on the furniture with the remainder due on final delivery (to your new house)?
quantAndHold
Posts: 5174
Joined: Thu Sep 17, 2015 10:39 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by quantAndHold »

I really depends on how much you’re buying and how close you are to the edge of being able to qualify for the mortgage. When I bought my first place, I was close enough to the edge that buying anything up front would have tanked the loan. When I bought my last place, I paid for a cross country move and a remodel on a different house, without causing any issues.

We bought the furniture for the new house after we moved, though. It was more fun to shop when we weren’t feeling so rushed.
Yes, I’m really that pedantic.
Soon2BXProgrammer
Posts: 1629
Joined: Mon Nov 24, 2014 11:30 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by Soon2BXProgrammer »

adamthesmythe wrote: Thu Nov 26, 2020 12:09 pm Why not put a deposit down on the furniture with the remainder due on final delivery (to your new house)?
this is a reasonable option as long as they don't want to run your credit to do it.
michaeljc70
Posts: 7387
Joined: Thu Oct 15, 2015 3:53 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by michaeljc70 »

I believe charges to your credit card are not immediately reported to the credit bureaus so I wouldn't worry that much about it. Most report every 30-45 days.
User avatar
jfn111
Posts: 1226
Joined: Fri Nov 08, 2013 10:42 pm
Location: Minnesota

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by jfn111 »

Ask your Lender. It's all about debt to income and they can tell you the right approach for your situation.
User avatar
David Jay
Posts: 10018
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by David Jay »

We have a friend who is a mortgage underwriter. She tells her clients: Don’t go out and buy things until after close. And yet they do. And they lose their financing. And can’t understand why...
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
TropikThunder
Posts: 2679
Joined: Sun Apr 03, 2016 5:41 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by TropikThunder »

totallynotsure wrote: Thu Nov 26, 2020 11:43 am that said, i confirmed with the lender that after the initial credit check they only do one more soft pull before closing is to confirm no new credit accounts have been opened.
They key here is that they do a soft pull of your credit report, not a full re-do of all your financial documents. Once you are “clear to close”, that means the underwriter has decided all your numbers are acceptable. The only numbers that could change from the soft pull are your credit score, recent inquiries, and debt to income.

You could blow $50k cash on furniture and your lender would not know. What you could NOT do without the underwriter noticing is run up your existing credit card balances (that changes your credit score), apply for new credit (that creates a new inquiry), or open a new account (that changes your DTI). Each of those changes is a risk for the lender that requires underwriter intervention.

At minimum, the lender just needs an explanation. Did that new credit inquiry lead to a new account they can’t see yet, or did Chase just do a hard pull to consider raising your limit. More serious, did running up your credit card balances lower your credit score enough to lose that excellent rate you qualified for? Now they have to redisclose the loan and there goes your quick closing. Worst case scenario, do the new accounts you opened (or the increase card balances) increase your DTI above the cut off? There goes your whole loan.

“Don’t buy anything” is an oversimplification because most people don’t understand how the underwriting process works, or how a credit report works. Opening a new account (or even trying to) is a big mistake, and so is trashing your credit score. But credit cards only report once a month, and then only report the ending statement balance. You could max out every card you have and immediately pay them off and still have $0 balances reporting. It’s easier and much safer for the banker to say “don’t do it” then to say “if you’re going to do it, make sure you yada yada yada ....”.
DesertDiva
Posts: 1006
Joined: Thu Mar 01, 2018 12:49 pm
Location: In the desert

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by DesertDiva »

David Jay wrote: Thu Nov 26, 2020 2:18 pm We have a friend who is a mortgage underwriter. She tells her clients: Don’t go out and buy things until after close. And yet they do. And they lose their financing. And can’t understand why...
So your advice is: “do what the lender tells you if you really want the loan.” :happy
User avatar
8foot7
Posts: 2432
Joined: Mon Jan 05, 2015 7:29 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by 8foot7 »

Our most recent lender ran both a credit monitoring alert service on us as well as reverified bank balances 48 hours prior to closing. There was essentially no way we could have made large purchases without potentially getting detected unless we had furniture money in a cash account we did not disclose as part of the application.

Around the same time my Target store card converted automatically involuntarily into a Target MasterCard which reported as a new account with a much different profile. This took some real work to get around. Again I did not ask for this conversion. Even if you think you are coloring within the lines, there are a lot of players in the system and they don’t always operate consistently forever.

I don’t know why you would tempt fate. You can get a deal anytime if you push hard enough.
srt7
Posts: 578
Joined: Mon Sep 29, 2014 12:19 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by srt7 »

I would highly recommend that you wait until after closing to buy the furniture. It’s not uncommon for lender to ask you bring more $ to the table at closing. So even in the best case scenario that you’ve set aside undisclosed cash (like a previous poster wrote) it may come in handy. If you open a credit line / run up a balance on an existing credit account you will run into issues with underwriting.
sman09
Posts: 310
Joined: Fri Mar 23, 2018 12:02 am

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by sman09 »

As OP had mentioned about only 1 soft pull after the initial hard pull, wanted to clarify on this:

I had applied for mortgage pre-qualification earlier this summer from more than 1 bank. We signed a contract on a home very recently and when I contacted 2 of those banks informing them about wanting to proceed ahead, they once again asked for my permission to check my credit. Is it normal? 6 months have not yet lapsed since last approval in mid-late Summer.

After I got email alerts that there has been a credit pull, I found that my credit score dropped quite a few points - could it be because the 2 credit pulls are being counted as 2 separate pulls. I recall reading here that if multiple mortgage shopping credit pulls happen within a month they are all considered as 1 pull. The multiple credit pulls in Summer did not cause a major change in my credit score but the most recent credit pull this week seems to have.

Any thoughts why it could be so?
stungerz
Posts: 105
Joined: Sat Apr 28, 2012 12:43 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by stungerz »

When I bought a place many years ago I was just under the loan to debt ratio. I spent a few grand on some items on my credit card and got a call from my broker so I paid off the credit card bill and put a some extra in there to have a credit
TropikThunder
Posts: 2679
Joined: Sun Apr 03, 2016 5:41 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by TropikThunder »

sman09 wrote: Thu Nov 26, 2020 8:32 pm I had applied for mortgage pre-qualification earlier this summer from more than 1 bank. We signed a contract on a home very recently and when I contacted 2 of those banks informing them about wanting to proceed ahead, they once again asked for my permission to check my credit. Is it normal? 6 months have not yet lapsed since last approval in mid-late Summer.

After I got email alerts that there has been a credit pull, I found that my credit score dropped quite a few points - could it be because the 2 credit pulls are being counted as 2 separate pulls. I recall reading here that if multiple mortgage shopping credit pulls happen within a month they are all considered as 1 pull. The multiple credit pulls in Summer did not cause a major change in my credit score but the most recent credit pull this week seems to have.

Any thoughts why it could be so?
Credit reports are only good for 120 days (not 6 months) per Fannie Mae underwriting guidelines so if it’s been longer than that then you have to start over. Also, clustering mortgage applications does minimize the credit score impact but that’s only for a ~45 day window per FICO scoring models so again if it’s taking longer than that it’s like starting over.
PatrickA5
Posts: 550
Joined: Mon Jul 28, 2014 1:55 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by PatrickA5 »

David Jay wrote: Thu Nov 26, 2020 2:18 pm We have a friend who is a mortgage underwriter. She tells her clients: Don’t go out and buy things until after close. And yet they do. And they lose their financing. And can’t understand why...
Sister in law bought a refrigerator - even though her loan person told her not to buy anything. Her rate (several years ago) went from 4% to 4.25% because her credit score dropped below some preset level. So, she'll be paying an extra quarter percent for 30 years. Pretty expensive fridge.
User avatar
Watty
Posts: 21388
Joined: Wed Oct 10, 2007 3:55 pm

Re: In the midst of closing on a home, should I really not be making any purchases (furniture)?

Post by Watty »

There are so many possible downsides that I would not do it.

1) The home purchase may not actually happen. We had a big storm a few weeks ago and someone up the street has their house for sale and under contract. They last a few big trees but they fortunately did not hit the house. If they had hit the house then the damage would have likely caused the sale to fall through.

2) I would be skeptical that the lender will tell you all the details of when they will do the credit checks since that could allow you to game the system. Just the fact that you asked may have been a red flag that will cause them to pull your credit reports again on the day the closing happens. As I recall they do a lot of stuff that day like checking for any last minute liens on the property.
Post Reply