There is a problem that often happens, but is rarely discussed, that stops the homebuyer from purchasing their dream home. In most cases, the lender withdraws its loan commitment to finance the home, and the homebuyer’s time and money (home inspection, appraisal, etc.) have been wasted.
During the pre-settlement stage, the lender can revisit all factors determining loan approval prior to disbursement of funds at settlement. It does not matter whether it is weeks or days before the homebuyer and seller are scheduled to close the deal (settlement); the lender can pull the homebuyer's credit report. If the credit report has new, derogatory (negative) information and credit scores have dropped, most likely, the lender will not loan the homebuyer money to purchase the home. The lender can withhold funds if the homebuyer has yet to adhere to the agreement.
Therefore, if you are planning or in the process of buying a home, avoid creating derogatory credit or incurring new debt that will negatively impact your debt-to-income (DTI) ratios*.
The homebuyer cannot do any of the following during the process of buying a home:
- Buy (finance) a vehicle, new or used
- Co-sign on a loan
- Add an authorized user to a credit card
- Apply for credit cards or loans
- Increase their monthly debt
- Make late payments or miss payments, which will negatively impact scores
- Spend money saved for downpayment and closing costs
- Change or quit a job
- Large deposits or withdrawals from accounts
For additional information about what not to do during the homebuying process, talk to a loan officer or a HUD-certified housing counselor.
* DTI ratio is your total monthly debt payments divided by your gross monthly income that lenders use to determine if you can afford additional new debt, such as a monthly mortgage payment.