Congrats on your new home purchase! We’ll guide you through the exciting process of Furnishing Your New Home Purchase Prior To Closing On Home Loan. From budgeting to creative tips, we’ll help you make your new home feel like home. Let’s discuss how to make the transition as smooth as possible.

Furnishing Your New Home Purchase

Furnishing your new home purchase is an exciting and often the most memorable time for homeowners. Most can’t wait to go shopping for new furniture once they have an executed real estate purchase contract. However, it’s advised that homebuyers should wait until they have closed on their home before making any purchases.

There are many considerations to keep in mind when furnishing your new home. Buying new furniture, whether using funds from a bank account or purchasing on credit, can be risky.

Many furniture companies offer special deals for consumers who apply for their furniture credit cards, including offers like zero interest for one year or no payments until later—deals that most homebuyers find hard to refuse.

Yet, indulging in these offers can hurt the mortgage application process, potentially leading to devastating outcomes. It’s essential to approach furnishing your new home cautiously and fully understand the implications of any financial decisions made during this period.

Furnishing Your New Home Purchase Using Delayed Financing

When you buy a new home, you’ll be furnishing your new home purchase. Many furniture stores offer delayed financing, which allows you to buy furniture now and start paying later, sometimes with 0% interest for the first year. These deals are often advertised alongside limited-time sales events, making them seem urgent.

However, it’s important to be careful when considering these offers. Delayed financing can increase your debt-to-income ratio, affecting your ability to get a mortgage.

Similarly, using your savings to buy furniture can cause problems with loan processing, as it might affect the balance shown in your bank statements. So, while these financing deals seem like a good idea, it’s important to think carefully before taking them up. Click here to apply for Mortgage loans

Dangers With Opening New Credit During Mortgage Process

During the mortgage loan process, lenders don’t just pull credit once; they conduct one or more soft credit pulls. If they detect credit inquiries, the mortgage loan underwriter will require a letter of explanation for each inquiry.

Additionally, every time you apply for new credit, a hard credit inquiry is generated, leading to a drop in credit scores by 2 to 5 points or more. Any new credit incurred during the mortgage process, such as buying new furniture to purchase your new home, will be scrutinized.

The minimum monthly payments on this new debt are calculated and factored into debt-to-income ratios. If borrowers already have higher debt-to-income ratios and add more debt, especially through new furniture purchases, it could impact the allowable maximum debt-to-income ratios, potentially leading to mortgage loan denials.

Can You Add Onto Your Mortgage?

If you want to increase your mortgage, you have a few options. You can refinance your mortgage or get a home equity loan or line of credit. Refinancing means replacing your current mortgage with a new one with a larger loan amount, allowing you to access extra funds for things like home renovations or consolidating your debts.

Alternatively, with a home equity loan, you can borrow against the equity in your home, and it comes with fixed interest rates and a set repayment period similar to a traditional mortgage. A home equity line of credit (HELOC) could be an option if you need to borrow money.

It’s like a revolving credit line – borrow up to a limit and pay back as needed. However, before you take out a HELOC, it’s important to consider the interest rates and fees, compare options, and make sure the additional debt aligns with your financial goals.

What Happens if My Credit Score Drops Before Closing?

Suppose your credit score drops before closing on a mortgage loan. In that case, it can potentially affect several aspects of the loan process and your ability to secure the loan:

1. Loan Approval: A significant drop in your credit score might lead to the lender re-evaluating your loan application. They might require additional documentation, such as explanations for the drop or updated financial information.
2. Interest Rate: When evaluating loan applications, an individual’s credit score is a crucial factor that determines the interest rate they will be charged. If their score is lower, they may be subject to a higher interest rate, resulting in increased monthly payments and a higher overall loan cost.
3. Loan Terms: In some cases, a lower credit score might lead to changes in the loan terms, such as a different loan program or adjustments to the loan amount or down payment requirement.
4. Risk Assessment: Lenders use credit scores to evaluate credit risk. A significant decrease in your credit score could raise doubts about your capability to repay the loan, which may result in reconsidering your loan application.
5. Conditional Approval: If your credit score drops significantly, the lender might issue a conditional approval, subject to meeting certain conditions such as providing additional documentation, paying off debts, or improving your credit score within a specified timeframe.

To reduce the impact of a credit score drop before closing, promptly communicate with your lender, clarify reasons, provide documentation, work on improving your score, and keep your lender informed to minimize disruptions.

Do Lenders Pull Credit Day of Closing?

Furnishing Your New Home Purchase: Buying Furniture With Cash

Purchasing new furniture using cash while going through the mortgage loan process can pose challenges, especially when furnishing your new home purchase. Lenders typically request 60 days’ worth of bank statements to assess the borrower’s financial situation thoroughly.

Lenders scrutinize home loan applications to ensure there’s enough money for the purchase and that all funds can be traced to legitimate sources. Unusual or significant deposits may raise questions.

For instance, if a homebuyer is acquiring a $100,000 home with an FHA Loan and receiving a $5,000 seller’s concession covering all closing costs, they would not require additional closing costs.

However, in this scenario, they would still need to meet the 3.5% down payment requirement, amounting to $3,500. The process isn’t finalized even if the mortgage processor and underwriter have already confirmed and sourced the cash in the bank account, leading to a conditional mortgage loan approval. Mortgage underwriters will double-check that the $3,500 down payment remains in the bank account before issuing a clear-to-close status.

Property Tax Prorations

Property taxes in Illinois are paid after they are due, which means they are paid in arrears, affecting how furnishing your new home purchase aligns with the mortgage process:

Home sellers must provide the buyer with one year’s worth of property tax prorations, which can be used towards the buyer’s down payment.

This means that in cases where property tax prorations lower the required down payment, borrowers won’t need the full 3.5% down payment or $3,500 upfront. Instead, the down payment will be reduced by the property tax proration credit from the seller. However, lenders still require proof that the full down payment, whether 3.5% of the home purchase price or $3,500, is seasoned in the borrower’s bank account.

While many homeowners may want to use their funds to furnish their new home purchase, it’s crucial to note that lenders review bank statements until the closing day. Suppose the statements need to show more funds to cover the full down payment without considering property tax prorations.

In that case, the lender may not fund the mortgage, leading to a failed closing. Therefore, it’s advisable to wait to furnish your new home purchase until after closing, especially if insufficient assets cover the required down payment independently.

Should I Pack Before Closing?

Yes, it’s generally a good idea to start packing before closing on a home. While the closing process typically takes some time, and you may have a closing date set, unexpected delays can occur. Starting to pack early can avoid last-minute stress and ensure a smoother transition into your new home once the closing is complete. It’s also a good opportunity to declutter and organize your belongings before the move.

FAQ About Furnishing Your New Home Purchase Prior to Closing on Home Loan

1. What are the risks of furnishing my new home before closing? Furnishing your new home purchase can be exciting, but it’s essential to wait until after closing. Major purchases, especially with credit or new financing, can impact your mortgage application process. Lenders scrutinize bank statements and debt-to-income ratios. New debts or credit inquiries can lead to loan denials or delays.

2. Can I use delayed financing to furnish my new home purchase? Delayed financing options offered by furniture stores seem attractive. Still, they can affect your debt-to-income ratio and mortgage approval. These offers often come with 0% interest for the first year. Still, it’s crucial to consider the long-term impact on your finances and mortgage application.

3. How does adding new credit during the mortgage process affect my loan approval? During the mortgage process, new credit accounts can lower a credit score and impact loan approval. Lenders review credit reports multiple times during the process, and any significant changes can lead to additional documentation requests or loan denials.

4. What options do I have if I need extra funds for furnishing my new home purchase? Consider refinancing your mortgage or getting a home equity loan for extra funds to furnish your new home. Just consider the pros and cons before making any decisions.

5. Should I wait to pack before closing on my new home? For a smoother transition and to avoid last-minute stress, it is recommended that one begins packing before closing on their new home. This can also assist in decluttering and organizing belongings.

This blog about Furnishing Your New Home Purchase Prior To Closing On Home Loan was updated on April 5th, 2024.