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“This isn’t the right time to buy his and her BMW’s.”
My Northern Virginia real estate clients have heard me deliver that line for almost two decades when we discuss putting together an offer to buy a home. It’s meant to be funny, but also a very serious warning.
Real estate sales contracts will outline the type of mortgage financing that the buyer is going to obtain to buy the house. Based on that information, a home seller will agree to accept the offer making it a ratified or binding contract. Still following?
- No new lines of credit
- Don’t change jobs
- Don’t move balances on your credit cards
- It’s all about the ratios and documentation
The Realtor sales contract used in Northern Virginia real estate sales specifically outlines that the home buyer will comply with the mortgage lender’s requests in a “timely and diligent manor”. But it also outlines that failure to comply with the lender requests or committing an act that prohibits them from obtaining the specified financing may result in DEFAULT.
NVAR Regional Real Estate Sales Contract ¶26: DEFAULT
The Washington Post Saturday Real Estate Section (May 15, 2010) had an article about mortgage lenders reviewing credit reports an extra time, just before closing, to make sure the buyers haven’t impacted their financial status with other new lines of credit. (Credit Reporting Agencies can also send “alerts” to the mortgage lender of any changes) For example, if they see that you now have a credit line at McLean Furniture for $10,000 that wasn’t on you first report, well then you’ve got some ’splainin’ to do.
This extra scrutiny may just blow your deal, cost you the Earnest Money deposit and open you up to pay extra damages to the seller for breach of contract (please include attorney’s fees).
This new “second credit report” at the last minute program began June 1, 2010, but lenders have typically re-verified employment just before closing. Rhonda Porter called this a new “Speed Bump Prior to Funding Your Mortgage” which is sure to cause some headaches.
So, here is my professional recommendation: once you are involved in a real estate contract restrain yourself and do not make any new credit applications… you are on thin ice!
Let me warn you, your mortgage lender will recheck everything just before settlement
Again, this isn’t the right time for new BMW’s!
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About Doug Francis
A few years ago I noticed that real estate sites seem to show the same MLS listings, so I decided to create a distinct real estate blog to share my local insight - if you already live here or are relocating. There are topics based on recent client experiences, buying custom homes, and more learned over the past twenty years. Take a few minutes and read a blog post or two to see if my approach matches your goals. I am a real estate agent with RE/MAX, have lived in Oakton and McLean, and live in Vienna Virginia. My goal is to provide you with intel into today's market, candor, practical advice, ideas to get you moving, some humor, geeky stats, the best coffee shop, some video, and a cool way to search for homes. Helping you understanding the process of making an offer, the sales contract and more will come when we meet. Yes, I live here. It is easy to reach me: 
Amen. Lenders are so risk averse nowadays it’s hard to get a Happy Meal at Mickey D’s without full documentation and a letter of explanation. There will be plenty of time after settlement.
.-= Ken Montville´s last blog ..Buying Things Before Your Real Estate Settlement May Kill The Deal =-.
Those extra lines of credit for that new TV may just undermine a home sale as the financing ratios will get out of whack. Keep it simple, no new credit which seems counter-cultural.
Funny, but your comment rolled in as I was updating this post with a link to Rain City Guide and Rhonda Porter’s post on the same topic. She mentions a “Speed Bump…” so see the link above.
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