Sometimes, families going through the loan process are so excited about the prospect of purchasing a home and how that home will look that they jump the gun and either make a major purchase with their credit card or open a new credit card to make some major purchases.
As we’ve discussed in previous videos, this can have a detrimental impact on your credit. There are some loan programs that require us to do a soft credit pull prior to closing, so we’ll see any credit inquiries for large purchases. Depending on the purchase amount and what it does to your credit score, this could affect your qualification and eventual closing.
Even though furniture stores can offer you 0% financing for 60 months, what they’re essentially doing is providing you a credit card, which is a revolving credit line that will report to all three major credit bureaus. When you apply for the store’s financing, that will show up on your credit history and, in turn, drop your credit score because a computer doesn’t understand the circumstances involved. It doesn’t know whether you’re credit-seeking or you’ve perhaps fallen on hard times and you’re trying to take out a card and max it out.
If you’re given $1,000 worth of credit and you spend all of it, not only will that inquiry drop your credit score, but you will have also maxed out another account. Even though that $1,000 sum requires 0% interest or doesn’t require any payments for the first six months, it will still show up on your credit report, which could affect your debt-to-income ratio.
Buying furniture for your new home is something that needs to be done, but you don’t want the furniture truck to show up in the driveway the day of your closing because that means your furniture store account would’ve had to have been opened and financed prior to that closing.
Paying for new furniture with cash before you close on your home, on the other hand, won’t hurt anything unless you use the money you set aside for your down payment and closing costs. It’s your money and you can do what you want with it, just be cognizant of what you’ll need at the closing table.
The best time to purchase new furniture for your home is anytime after you close. Us lenders won’t verify what happened after the day of your closing, so if you need to sign up for a line of credit from a furniture store, make sure you do it after you close. That way, you actually have a home to put your furniture in.
If you have any other questions about this topic or anything else about the mortgage loan process, don’t hesitate to reach out to me and my team. We’d love to help you.