How a Furniture Purchase Almost Derailed My Mortgage

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Don’t make the same mistake I made if you’re waiting to get a mortgage.

Key points

  • Several years ago, I took out a mortgage to buy a house.
  • While waiting for closing time, I loaded up some furniture.
  • This affected the credentials my mortgage lender was reviewing when they approved my loan.

A long time ago, my husband and I took out a mortgage for a property. As we were waiting for the closing of the loan, we decided to buy new furniture for the house. Specifically, we opted for charge the purchase of several thousand dollars worth of furniture on a credit card in order to earn rewards points which we may redeem for merchandise or cash back.

It seemed like a good idea at the time, but it ended up causing a whole host of problems for us and it was almost impossible to close my mortgage and get the loan we needed. Here’s why.

How Loading Furniture Could Have Cost Me My Mortgage

My mortgage lender reviewed all of my financial information before pre-approving me for my home loan. But that doesn’t necessarily mean that I was guaranteed to be able to borrow the amount I needed at the promised rate. Before closing my loan, after I had an accepted offer on a house, the lender went through all my details again.

When I charged for my furniture purchase in anticipation of moving into my house, it obviously resulted in a large balance on my credit card. I intended to pay it off immediately when the statement came in, so I wasn’t going to pay interest and I wasn’t going to be responsible for the monthly furniture payments. But the large card balance was still on my credit report when my mortgage lender checked my credit again.

Unfortunately, because I had loaded so much onto my card, my credit score was temporarily affected. My credit utilization rate on my credit card was well over 30%. This ratio refers to the amount of credit used versus credit available, and it is a key component in determining a credit score. A higher ratio is considered a red flag, so my lender saw my reduced credit rating and it made him nervous.

The credit card company also flagged my new minimum payment based on my high credit card balance, which hurt my debt ratio, which is the ratio of how much you owe to what you earn. . Mortgage lenders consider DTI to be a key criterion in determining whether to allow someone to borrow money.

With a lower credit score and more debt, I was no longer such an attractive client for my mortgage lender and my loan was at risk. Fortunately, my lender was willing to work with me. I had to pay off the card in full and provide proof that it had been done and that I still had plenty of assets in the bank before the lender was ready to close.

Although we were able to get the loan in the end, it was a lot of extra stress and hassle – and I might not have been able to borrow to buy the house if I hadn’t been able to pay off the card in full .

How can you avoid my mistake

If you’re buying a house, you don’t want to make the mistake I made. While you’re waiting for your mortgage to close, avoid charging for major purchases or applying for new loans. Otherwise, your most important loan – your home loan – could be affected. Instead, wait until you close to move forward with any other borrowings you may need, so you can move into your home without worries.

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