Can I Get a New Loan Before Closing on a Home?
Money Girl discusses the potential consequences of changing any aspect of your finances before you close escrow on a home.
William M. wants to know:
"I’m attending school in the fall and am buying a house as well. I’ve signed the mortgage loan papers and the closing is in about 20 days. The mortgage broker told me not to change anything with my credit, but I can’t attend school without a new student loan. Now that the underwriter has the paperwork, would there be any harm in getting a student loan before the real estate closing? I already have some student loans, so I wouldn’t be doing anything the lender doesn’t know about already."
There’s a very good reason William’s mortgage broker told him not to tinker with his credit before his home purchase is a done deal!
Getting additional credit before you close escrow on a home can put the sale in jeopardy. The lender can pull your credit the day of the closing and deny the loan if anything has changed with your finances. So please don’t think that you can slip something by a mortgage underwriter.
William’s existing student loans were taken into consideration by the lender in their approval process. They determined that his debt-to-income ratio and credit score was sufficient to meet their guidelines. However, taking out additional credit (even a small amount) changes William’s financial ratios and can lower his credit score enough to make the lender have second thoughts.
Or the lender could still give William the mortgage, but at a much higher interest rate. Taking out a new student loan or credit account of any kind after you submit paperwork for a mortgage can easily be the difference between a mortgage approval or denial.
Even if your underwriter doesn’t check your credit prior to the closing date there’s another issue to consider. One of the many documents or affidavits you sign at closing requires you to verify that nothing has changed with your financial or credit situation. Providing false information on any closing document can result in criminal penalties or give the lender the right to call your loan, which means that the entire loan balance becomes due immediately.
So I highly recommend that you wait until your home closing is complete to pursue a student loan. If you need to pay for school in the next few weeks before your home closing, pay cash or get a loan from a family member or friend. If you contact your school’s financial aid officer and explain your situation, they may allow you to delay payment for a few weeks. If you need more information about the potential consequences of changing any aspect of your finances before the closing, consult with your mortgage broker.
Home loan photo from Shutterstock