Here is a great WSJ article written by: Dawn Wotapka.
With the deadline on the first-time home buyer tax credit looming, plenty of buyers are under contract and looking to close before Nov. 30.
Excited to move into a new home, some of these first-timers start hitting the stores shopping for new furniture, appliances or curtains.
Big mistake.
Real estate agents are reminding buyers to wait until the close to start buying stuff.
The reason: Lenders are occasionally running credit reports on closing day, and they might not like to see an increase in credit card debt or indications that debt could soon increase, says Lew Reich, a Realtor with Keller Williams Realty in Plano, Texas.
Buying is off the table, but so is serious looking: Don’t even think about checking out that new car or boat because even an inquiry on a credit report might raise red flags. Too many inquiries, Mr. Reich adds, might be detrimental, particularly for those who just met the lender’s minimum requirements.
“If someone’s squeaking by and, all of a sudden, they may be looking at increasing debt, the lenders will have a keener eye in looking at your loan,” he says. “Don’t look until you’ve closed is basically what it comes down to. That’s the safest way. Stay out of the stores.”
While such measures have been used over the years, lenders, still dealing with the fallout from the boom’s lax lending standards, are being especially particular these days. Even buyers with great credit scores face scrutiny.
Agents also advise not moving money between accounts, so don’t join two savings accounts, transfer large sums out of savings or add more funding to checking. Emptying out an account could look like money’s being spent, and lenders might request a paper trail for the money flow, Mr. Reich explains. That could delay the closing or, in rare cases, terminate the loan. That wouldn’t necessarily free the buyer from the obligation to buy the home, he warns.
Dan Rider, a broker with Dickson Realty in Reno, Nev., says one of his recent closings was delayed by five days when lenders spotted a $500 deposit in a buyer’s checking account. It wasn’t a gift – it was a repaid loan from her mother – but it sparked concerns that the buyer needed help to close the deal. Though the buyer had a healthy checking balance, the lender wanted canceled checks and bank statements and both parties had to write an explanatory letter.
“The simplest things can create fairly major delays,” Mr. Rider says, adding buyers could face financial penalties for late closings. And of course, with the clock ticking on that tax credit, there’s also the penalty of missing out on eight grand. Although, delayed buyers could still get lucky: A Senate bill introduced Thursday seeks to extend the credit for another six months.
Source: WSJ; September 18th, 2009
