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Avoid making big purchases right before buying a home

There are many reasons you could want to make a major purchase about the same time you buy a home. Perhaps most obvious, you see a piece of art or furniture that would look perfect in the home you want. In other cases, you may have also been saving for a new car, or decide to get a car if your home purchase expense is lower than you expected.

However, it is not a good idea to make major purchases before you buy a house. Here is a look at why.

Debt-to-income ratios could change

Lenders examine your income and how much your monthly expenses are. In general, you should keep your monthly expenses under 43 percent of pretax earnings, and this ratio is called debt-to-income. So, if you make a big purchase via a loan or credit card, the figure that was previously under 43 percent might soar above. This is one reason why some loan preapprovals do not result in actual approvals.

The good news is you may still have wiggle room. Talk to your lender to get an idea of where your percentage is, and see if he or she can rerun the numbers with the new purchase in mind. You might be okay. Also, do not close any credit card accounts.

You need a cash cushion

So you may be thinking, "No problem. I will just pay with cash instead of credit." That is good thinking, but unfortunately, it might be flawed. Why? The thing is lenders also want to see you have sufficient cash reserves, enough to make at least two or three mortgage payments. If your big purchase affects your ability to show enough cash on hand, that could hurt your final loan approval for the house. Of course, if you anticipate having a tremendous amount of savings left over after down payments, closing costs and the like, you might be in the clear. Still, it is safer to consult with the lender first.

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Lundy Lundy Soileau & South, LLP

Main Office: 501 Broad Street Lake Charles, LA 70601 | Phone: 337-439-0707

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