Buyers Furnishing Your New Home Purchase
Furnishing Your New Home Purchase:
Furnishing your new home purchase is an exciting and memorable time for home buyers. Most home buyers cannot wait in going out shopping for new furniture once they have an executed real estate purchase contract. If you are a home buyer, furnishing your new home purchase should wait until you have closed on your home. There are many things to consider when furnishing your new home purchase when purchasing your new furniture, especially using funds from your bank account or buying your new furnishings with credit. Many furniture companies will offer special deals if you apply for their furniture credit cards where it will state zero interest for one year or no payment until a later date where most home buyers cannot refuse. However, buying new furniture can have devastating outcome when it comes to the mortgage application process .
Furnishing Your New Home Purchase Using Delayed Financing
Nothing is wrong with shopping for new furniture after you have an executed real estate purchase contract and most folks do. One of the most temptations they will encounter when shopping for furniture is that many furniture stores will have delayed financing where you can buy your furniture now and you will have delayed financing where you will not have your first payment until a year later. Other times, furniture stores will offer 0% financing for the first year. Furniture stores try to sell you on temptations where they may advertise that the blow out sale for this weekend only or end of the month sale or special dates where the sale or special financing is good until for. Do not get suckered in with this common sales gimmick because it may end up hurting you. I had cases where due to the furniture purchase that the mortgage loan file blew up on higher debt to income ratio or because the borrower has used the sourced cash in their bank statements to purchase furniture.
Mortgage lenders will not just pull credit once during the mortgage loan process. They will do one or more soft credit pulls and if they notice credit inquiries , the mortgage loan underwriter will want to know and a letter of explanation will be required for every credit inquiry. Plus, every time you apply for new credit, the creditor will run a hard credit inquiry on you. Each hard credit inquiry will drop your credit scores by 2 to 5 FICO points and sometimes more. Whenever you incur new credit during the mortgage process, the new debt will be questioned and the minimum monthly payments will be calculated and used in debt to income ratios calculations. If you already have higher debt to income ratios and incur more debt, especially by buying new furniture, it could affect the maximum debt to income ratios allowed and your mortgage loan can get denied.
Furnishing Your New Home Purchase: Buying Furniture With Cash
Buying new furniture during the mortgage loan process with cash can also present a problem. Mortgage lenders require 60 days of bank statements and will analyze the bank statements and make sure that the borrower has sufficient funds for the home purchase. All funds in the bank statements needs to be sourced and any irregular and/or large deposits will be questioned. If a home buyer is purchasing a $100,000 home with a FHA Loan and getting a $5,000 sellers concession where it will cover all of the closing costs, the borrower does not need any closing costs but would need the 3.5% down payment required on the FHA Loan home purchase or $3,500. If the mortgage loan borrower provided the bank statements initially to the mortgage loan processor and the underwriter confirmed and sourced all of the cash in the bank account and issued the conditional mortgage loan approval, the borrower is not out of the woods quite yet. Mortgage lenders will verify that the $3,500 down payment is still in the bank account prior to the mortgage loan underwriter issuing a clear to close . In the state of Illinois, property taxes are paid in arrears and home sellers need to give the home buyer one year’s property tax prorations which can be used towards the home buyer’s down payment so on the above example, the mortgage loan borrower will not need the full 3.5% down payment or $3,500. The net amount of the down payment will be the $3,500 less the property tax proration credit by the home seller, however, mortgage lenders still need to see that the full down payment of the 3.5% of the home purchase price or $3,500 needs to be seasoned in the borrower’s bank account. Many homeowners want to purchase furniture and use the funds they have in their bank account. Unfortunately, this will not work because, as mentioned earlier, the mortgage lender will want to see updated bank statements until the day of the closing and if there is not enough funds to show the full down payment without the property tax prorations, the mortgage lender will not fund the mortgage loan and the home buyer will not close. Bottom line is that home buyers should wait in furnishing their home and avoid buying furniture unless they have plenty of assets.