What Is Considered A Big Purchase During Mortgage Underwriting?

A mortgage is a major financial commitment. So, the underwriting process will include a thorough examination of your financial situation to make sure you can afford the loan. If you make a big purchase during the process, that could derail your mortgage application.

But what is considered a big purchase during underwriting? Let’s take a closer look to make sure you don’t undermine your homeownership goals.

What Is Considered A Large Purchase Before Closing?

A big purchase – one that increases your debt-to-income (DTI) ratio or drains your cash reserves – can be enough to cause your lender to pull the plug on your mortgage application. Ideally, in the days leading up to closing, you’ll want to do everything you can to keep your financial statistics from changing.

So, what qualifies as a major purchase? Buying a vehicle with or without financing in the days leading up to closing is a good example. But anything that changes your financial picture in a big way should wait until after closing.

Although a “large purchase” will vary based on your budget, consider avoiding any purchases that you need to finance. Even if you can make the purchase in cash, it’s good to hold off until after closing. Otherwise, the purchase will affect your cash reserves.

Why Can’t I Make A Major Purchase If I’ve Already Been Preapproved?

When a lender grants you a preapproval, it’s based on the financial details you provide. With that, a preapproval is a type of conditional approval.

If your financial situation changes, the lender may change its mind about their preapproval. That’s totally within the lender’s rights. The mortgage underwriter will check your credit score as close to closing as possible to make sure your financial situation hasn’t changed. If it has, an applicant can be denied a mortgage.

Another reason a lender may deny you a mortgage is based on the home. If the property doesn’t meet the property requirements set by the lender, then a preapproval won’t help you make it to the finish line.

How To Determine If A Purchase Will Be Considered Major By Your Lender

Whether a purchase will be considered major by the lender varies based on your situation. Here’s when a purchase might be a dealbreaker for your lender.

Debt-To-Income (DTI) Ratio

When you take on a mortgage, you are assuming a big debt. With that, it makes sense that lenders take your DTI ratio very seriously.

In fact, most lenders set a limit on how high your DTI ratio can be. In most cases, that limit is 43%. A DTI ratio higher than that would make you ineligible for most conventional conforming loans.

Not sure what your DTI ratio is? It’s easy to calculate. Add up your monthly debt obligations, then divide that sum by your gross monthly income. If a purchase changes your DTI ratio, that will likely affect your mortgage application. Depending on the change, a lender may even deny your mortgage purchase.

If you are thinking of adding another debt to your monthly bills, try to hold off until after closing. Otherwise, the lender may deny your application altogether.

Credit Utilization

Credit utilization is another important factor in the underwriting process. Essentially, your credit utilization reflects how much of your available credit you use.

For example, let’s say you have a credit card with a $10,000 limit. If you have a balance of $5,000, then your credit utilization would be 50%. Typically, a higher credit utilization score will cause your credit score to drop.

It’s also possible to see your credit score dropped after a big purchase. That’s because a new credit account can make it more difficult to keep up with your loan obligations. If you increase your credit utilization for open new credit accounts, that could negatively impact your loan application.

Emergency Reserve Funds

An emergency fund can help you cover unexpected expenses. As a new homeowner, expenses are likely to pop up as you settle into your new home.

Lenders want borrowers to have some reserves on hand to cover unexpected expenses. Plus, a robust emergency fund can help you continue making mortgage payments even if you lose your job.

So if you have to dip into your emergency funds to cover a purchase, a lender might not move forward with your loan application.

When Is The Last Credit Check Before Closing?

Typically, the final mortgage approval before closing occurs in the week leading up to the closing. Lenders will check the borrower’s credit report to verify any critical financial details.

If the lender spots any big purchases that significantly impact your financial picture, it’s possible they won’t finalize the mortgage. With that, it is important to wait until after closing day before making any big purchases.

What If I Can’t Wait To Make A Large Purchase?

Unfortunately, sometimes life makes it impossible to wait on a big purchase. If you absolutely cannot wait until closing to make a big purchase, reach out to your lender. 

The Bottom Line: Avoid Rocking The Financial Boat Before Closing

The home buying process often comes with many financial hurdles along the way. After saving for a down payment and finding the right home, you are right at the finish line. If at all possible, try to wait until after closing is finalized before making any major purchases.

After you close, you won’t have to worry about any lender oversight on how you spend your funds.