Buying a house is one of the biggest decisions you can make, and it’s a huge milestone in your life. And whether you’re buying a house for the first time or the fifth, you want to make sure you don’t accidentally sabotage your chances of getting the house you want.
And that’s why it’s so important to never apply for new debt when you’re trying to close on a house!
Adding new debt when you’re trying to buy a house is one of the biggest red flags in the real estate industry because it can wreck your chances of getting a mortgage.
Any new debt will increase your debt-to-income ratio, which is what lenders look at to determine whether they can give you a mortgage or not. When you increase the debt you hold, you increase that ratio. If the ratio goes above 35-40%, most lenders will not fund your mortgage. And even if they can still provide you with a mortgage, they may decrease the amount you can receive–spelling doom for your closing day.
Additionally, when you apply for new debt, whether it be a new car loan or a new credit card, it will show up on your credit report and lower your credit score.
This is not what your lender wants to see and it will definitely increase your interest rates.
And yes, this can happen even if you’ve been pre-approved. You can’t get the actual funding for a house until your mortgage is officially approved during the closing process. And if your lender sees any new debt, your chances of getting approved decrease greatly.
When you’re buying a house, you’re trying to pinch every penny, which can make it tempting to get a new credit card to tide you over. But it is so important to wait to take out new debt until after you’ve closed on the house. Otherwise, you could end up having to walk away from the sale.