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Close Escrow First, Then Splurge!

June 13, 2010

One of  the big stumbling blocks in buying a home today is qualifying for a mortgage.  Qualifying is a lot harder today then it was before the Real Estate bubble burst and the lenders were found to have given loans to people who weren’t really qualified for that purchase.  Credit is a bigger issue today in this process.

So, you have found your home, placed an offer and the offer was accepted.  The mortgage was approved and the closing date is set.  Now you can go shopping for those new appliances and furniture, right?  And in the case of one of my buyers, that new car they had been waiting for!

Wrong!  More mortgage lenders are pulling a last minute credit report before the closing date, sometimes even the day before.  You had your credit record pulled to place that offer and now you are having to provide another one weeks or months down the line.  Sudden changes to credit balances and assets could delay a closing or bump up an interest rate.

This means homebuyers – especially those trying to meet a 30 day escrow timeline – should keep their credit profiles and liquid assets as unchanged as possible in the time between an initial mortgage approval and a closing, mortgage analysts and credit experts say.

Lenders don’t want to see you take on new debt, so hold off on major credit card purchases – those that reduce available credit by 5% of 10% or more – says John Ulzheimer, president of consumer education for Credit.com.  So, if you have a credit limit of $25,000, keep purchases below $2,500.

Don’t apply for new credit cards or other loans.  The credit inquiry a lender makes when you apply shows up on your credit report and can affect your credit score.

Also, avoid substantially tapping liquid assets, such as checking and savings accounts and CD’s, says Keith Gumbinger, mortgage analyst for HSH.com, a publisher of consumer-loan information.

You do not want to set up a red flag for the mortgage lender to see during this escrow time period.  Wait until you have moved in to buy those new appliances you have been looking for, the new furniture you’ve been picturing in the rooms and especially that new car that you had your eye on for months.  It’s a short time period but you need to show that nothing has changed in the credit report that originally approved you for this purchase.

wsj

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