Your Mortgage: Once you apply don’t buy … (other stuff)

By Mike Miles

If you’ve ever applied for a home loan, it’s quite possible you’ve been told to not make big purchases during the loan process. But why?

Well, the short answer is because doing so could screw up the underwriting portion of your new home loan. But what does ‘screwing up the underwriting’ mean? You readers know me, so you’re aware I can’t just stop at a short answer. Let’s unpack what exactly that phrase means.

When you apply for a new home loan, the loan application is a snapshot in time of what is being represented as truth. Details of the loan application are documented for underwriting verifications, including things like income, assets, and liabilities.

Liabilities that are listed on a credit report are usually about 30 to 45 days behind in reporting the actual current balances, mostly due to billing cycles and when creditors report to the bureaus. This means that the liability portion of a loan application is, at least arguably, not a real representation of the current truth, but more so a snapshot of the truth.

What if the balance on your credit card in July was $2,000, but you made a huge purchase for something and now the balance is $6,000? The liabilities on your loan application would populate whatever shows on the imported credit report, so unless you say something to your loan officer, the underwriter would be using the $2,000 balance (which would have a lower payment) instead of the $6,000 balance. Now, chances are very low that the payment owed on the current balance would cause a loan application to be denied, but you get the point.

Underwriters, closers, and compliance officers are trained to turn over every single rock and use every tool when underwriting and closing a loan, including utilizing something called a pre-closing credit report. The pre-closing credit report isn’t a full credit report, but instead a check or refresh of the existing credit report (used for the loan application) liability balances and credit inquiries. If the pre-closing credit check shows an increase in balances and/or new credit inquiries, the loan could go back to underwriting. While not necessarily problematic, going back to the underwriter could, at a minimum, lose time and potentially cause a delay in closing. That being said, if the underwriter becomes concerned about the new debts or inquiries, a new full credit report may be required to proceed. Pulling a new full credit report could reflect lower scores because of the new debts, balances, and inquiries, and a drop in credit scores could certainly cause issues in underwriting and rate pricing.

My advice is this: Talk with your loan officer about any out-of-the-ordinary purchases you’re wanting to make. Let your loan professional have a chance to review what the impact may mean and properly advise you from there. I never want people to feel like they are trapped and can’t make purchases, but I also don’t want them to act without thinking and potentially cause themselves issues in the end.

This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain Mortgage today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268