Many people think the worst thing you can do after getting into a contract is to back out of it. While that can result in losing a large amount of money (earnest/good faith money), it’s not the worst thing you can do. Knowing what is can save you from a great deal of stress and heartache.
Watch You’re Spending and Credit Inquiries
When you set out to buy a home, the first thing you should do is get prequalified for a mortgage. This is when the lender will take some general information about your finances to tell you how much you can afford. This helps you and your Realtor with the search in finding your perfect house.
Once you find a house, you will be approved for a mortgage. This process is more in depth because you’ll have to furnish bank statements and income information. Once this process is done, you will know if you will receive the loan for the home you want.
Many people think once they receive the good news they have been approved for the mortgage that they are in the clear. They believe that it doesn’t matter what happens financially after the approval. Unfortunately, that is not true.
Up until the day of closing, your mortgage company will monitor your financial situation. The day of closing, they run your credit to make sure everything looks just the same as it did when they first approved the amount. Any changes to your credit, will cost the mortgage company to look into it to find out if you can still borrow the money you need for the home.
This means that if you buy something expensive, your financial situation will change and you could end up losing your loan. So many people make this mistake and end up walking into closing only to hear the news they will not be getting the house they were so excited about. This may be because they just bought a car or furniture for their new home.
Can you imagine thinking you’re going to buy a home and then be told at the last second you can’t?
It’s not only spending cash that could revoke your loan approval. Applying for credit cards is another big NO-NO. Every time you apply for a credit card, the loan company checks your credit and that lowers your credit score a little. While it’s not a significant hit on your credit score, it could be enough to completely change your approved loan amount.
In addition, getting credit will change how much more credit (loan) you can receive. Each person can only borrow a certain amount of money depending on their income and assets. When you ask for credit for a credit card, you could be taking away the credit you were going to receive in your mortgage. Again, it could lead to receiving a lower loan amount, which may not be enough to buy the home.
Important to Keep in Mind – Avoid Changes to Your Financial Situation
The best thing to do after entering a contract and getting approved for a mortgage is to NOT buy anything expensive or accept any credit. Just keep in mind that any changes to your financial situation could ruin the chances of getting your home.