We are buying a new home. Our mortgage was approved two weeks ago, and the sale is supposed to close near the end of March. We would like to start buying some new furniture and appliances now so that everything will be ready on moving day, but my dad says that buying a lot of stuff now could cause the lender to cancel the home loan. Is my dad right, or is he just being overly cautious?
Your father is a wise man. Though tempting, home buyers and people who are simply refinancing should never go on a shopping spree in the weeks or months that pass between the time their new mortgage is first approved and the day that their transaction actually closes. Many buyers don't realize that lenders will almost always do a second check of their credit report, often just a few days before closing day, to make sure that the borrowers haven't fallen behind on their bills (or rung up a bunch of new ones) since the mortgage originally was approved. If the last-minute check turns up lots of new debt or uncovers a previously undisclosed credit problem, the lender has the legal right to rescind its earlier loan approval because the buyers' ability to make future mortgage payments might suddenly be in doubt. Paying cash for your new furniture and appliances won't necessarily keep such purchases a secret either. That's because the mortgage lender also may contact the bank that holds your savings or checking accounts, your stockbroker and other financial institutions to ensure that the cash assets listed on your original loan application are still available to help cover your future housing payments. If the money is no longer in the accounts, the preapproved mortgage can be canceled - leaving you with the unhappy choice of terminating the home purchase and losing your deposit, or scrambling to find a new financing package that likely would include a higher interest rate or larger down payment.
-David W. Myers is a 20-year veteran of the newspaper and magazine business, having previously covered real estate for the Los Angeles Times and Investor's Business Daily.