Your lender considers a large purchase before closing to be anything that increases you debt-to-income (DTI) ratio or drains all your savings according to Quicken Loans.
- You can spend money before closing, just not much
- Lenders do check bank statements before closing
- You can make big purchases after closing, but be careful
If your financial situation changes your lender must reconsider your mortgage application. Each bank has its own parameters to gauge the risk. If you do anything to upset the balance of factors, you put your mortgage at risk. If you want to make a purchase, it is best to check with your mortgage representative before you do.
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Can I Spend Money Before Closing?
You can spend money before closing, but not much. A trip to the grocery store or a night out to celebrate a birthday or anniversary will not impact your loan. However, Quicken Loans also gives us three things that will cause problems:
- DTI – For most loans, this ratio cannot exceed 43%
- Credit utilization – Do not use all your available credit
- Savings – You need some money in your bank account
In a nutshell, do not borrow money before closing. Do not max out your credit cards. Do no plunder your bank accounts. The rule is do not make any abnormal purchases during the underwriting process. Wait until after the close. The banks look at these transactions, but there is another reason, as well. You need cash to close, both for your down payment and your closing costs. Do not spend so much money that you do not have enough to cover these.
Can I Spend Cash for a Purchase Before Closing?
If you have cash, yes, you can spend it before closing. However, do not withdraw cash from your bank to spend. Day to day expenses will not impact your loan approval. If you go to the grocery store it will not break the bank. In fact, the bank factors in that you need to eat. Even going out to eat or taking a weekend getaway will not dramatically change your financial situation.
On the other hand, if you need a new car, wait. Also, do not buy furniture for the home until after you close.
Can I Use My Credit Card Before the Closing Date on a House?
You can use your credit card, but your lender monitors that, too. Us it sparingly. Do not max out the card. That is a red flag for your lender.
Credit utilization is a ratio of how much credit you have against how much you use. If your credit card has a $10,000 limit and you use $9,500 of it the bank factors that in when they decide to approve the loan. Therefore, do not use your credit card more than you need to.
Do Lenders Check Bank Statements Before Closing?
Lenders do not typically check bank statements during the period when the house is pending until closing. The Mortgage Reports tells us that banks are only required to check them when you submit your application. When they do look at your statements, they are looking for:
- Bounced checks
- Large, undocumented deposits
- Regular payments but irregular activities
The last on needs an explanation. Institutional creditors, such as banks, credit card companies, etc. report to the credit bureaus. This, then, automatically shows up on your repot. However, if you have a private loan then your family member or friend will not report it to the credit bureaus. What the bank will see is that you take money out every month, and they do not know where it goes. This will be a big red flag. If you have a private loan you need to report it to your lender as soon as possible.
Do you have to notify your bank when making a large purchase Before Closing?
You should notify your bank when you make any large purchase during the underwriting process. When you do this, they may be able to adjust their figures. However, if you do not, they will probably deny your loan. It is that important to communicate any large transactions to your mortgage company.
Why Can You Not Make a Large Purchase Before Closing on a House?
You cannot make a large purchase before closing because it affects your credit and changes your financial situation. Quicken Loans says that you get your preapproval based on the financial information that you give them. Your approval is based on the bank verifying that information. The underwriting process verifies the financial details you give them.
If your financial situation changes for any reason, you risk the lender denying your application. As stated above, your lender looks at your entire financial situation to assess risk. If you make any large purchases before closing it does two things:
- Changes your financial situation
- Shows the lender that you lack discipline
Lenders want to do everything they can to reduce the risk of default. For such a big loan, you must show them that you are not going to fall behind on payments. The best way to do this is to put off any big purchases until after the deal is done.
Can I Make a Big Purchase After Closing?
Absolutely, you can make a big purchase after the closing. Once the bank approves the loan and finances the mortgage, they stop checking up on you. Therefore, if you need new furniture for your home, go shopping the day after the closing. It can be a way to celebrate.
However, do not spend recklessly. You have a big commitment now. Whenever you want to spend money remember that very large mortgage payment that is due every month.
Final Thoughts
For the bank, large purchases are anything that increases your DTI, decreases your available credit, or depletes your savings. Therefore, do not take out any new loans for anything. Do not max out your credit cards. Avoid large cash payments.
After the closing you can shop for things for your new home. However, be careful now that you have the new big mortgage payment each month.
