Can I Use My Credit Card Before Closing on a House?

The period between mortgage approval and closing is a sensitive phase. Lenders closely monitor a borrower’s financial stability during this time. Significant changes to your financial profile can impact the lender’s final decision. Maintaining financial consistency ensures a smooth progression towards homeownership.

Impact on Mortgage Approval

Lenders assess a borrower’s financial health throughout the mortgage approval process, focusing on two metrics: the debt-to-income (DTI) ratio and credit score. The DTI ratio compares your total monthly debt payments to your gross monthly income. Lenders use this ratio to determine your ability to manage payments. A higher DTI ratio signals increased financial risk.

New debt, such as a new loan or increased credit card balances, directly impacts this ratio. If your monthly debt payments increase while your income remains the same, your DTI ratio will rise. This change can push your DTI above the lender’s acceptable threshold, which typically ranges from 36% to 43% for conventional loans. Exceeding this threshold can trigger a re-evaluation of your loan approval, leading to delays or denial.

Credit scores are another component of mortgage approval, reflecting your creditworthiness. Lenders use these scores to assess repayment likelihood. Scores range from 300 to 850, with higher scores indicating lower risk. Lenders look for scores above 620 for conventional loans, with best rates for those with scores of 740 or higher.

Opening new credit accounts or increasing existing credit card balances can negatively affect your credit score. Each new credit inquiry can cause a temporary dip, and higher credit utilization can lower it. A drop in your credit score can alter mortgage terms or jeopardize approval if it falls below minimum requirements. Lenders regularly pull credit reports before closing to ensure financial standing remains consistent.

What to Avoid

Home buyers should avoid several financial actions between mortgage approval and closing to safeguard their loan. Taking out new loans, such as for a car or personal expenses, is a risk. These new obligations introduce additional monthly payments, increasing your debt-to-income ratio and potentially making you ineligible. Lenders base approval on a specific financial snapshot, and new debt alters that picture.

Opening new credit card accounts is discouraged. Each new credit application results in a hard inquiry, which can temporarily lower your credit score. New credit lines increase your total available credit, which, if utilized, can raise your debt and DTI. Even if not immediately used, the potential for increased debt is a concern for lenders.

Avoid making large purchases on existing credit cards, such as for furniture or appliances. These purchases increase your outstanding credit card balances, leading to higher credit utilization. High credit utilization causes your credit score to drop, and increased monthly payments elevate your DTI. Even if you plan to pay off purchases quickly, the immediate impact on your financial metrics can be negative.

Co-signing for a loan for another individual is a risky move. When you co-sign, you become legally responsible for that debt. This new obligation is factored into your DTI ratio, even if you do not expect to make the payments. Changing jobs, especially if it involves a shift in income or employment status, can also be problematic. Lenders verify employment and income before closing, and a change might require re-underwriting your loan, delaying or canceling the closing.

Safe Financial Practices

Maintaining your current financial status is the best approach during the pre-closing period. Continue to pay all existing bills, including rent, utilities, and credit card statements, on time. Consistent on-time payments demonstrate financial responsibility and help maintain a healthy credit score. Missed or late payments can negatively impact your credit and raise concerns for your lender.

Using credit cards for routine, small purchases is acceptable, provided these purchases are immediately paid off. This practice ensures your credit utilization remains low and that you do not accumulate new debt. Using a credit card for groceries and paying the balance in full before the statement closes will not impact your financial standing. The key is to avoid carrying balances that could increase your reported debt.

Avoiding significant changes to your financial profile is important. This includes refraining from making large deposits or withdrawals from your bank accounts that cannot be easily explained. Lenders scrutinize large transactions to ensure they are not indicative of undisclosed debt or unusual financial activity. It is advisable to maintain a consistent pattern of income and spending.

Transparency with your loan officer is important. Before undertaking any action that might affect your credit or debt, consult with your loan officer. They can provide guidance based on your individual loan approval and help you understand the implications of your financial choices. This proactive communication can prevent issues and ensure your home purchase proceeds smoothly.

The Final Lender Review

Lenders perform a final review of your financial standing in the days or weeks leading up to closing. This process confirms that your financial situation remains consistent with the information provided in your initial mortgage application. The final review includes a “soft pull” of your credit report. A soft pull does not impact your credit score but allows the lender to see any newly opened accounts, increases in credit balances, or new inquiries since the initial application.

In addition to the credit check, lenders conduct a final employment verification. This involves contacting your employer to confirm your current employment status and income. This ensures you are still employed and earning the income that qualified you for the loan. Some lenders may request recent pay stubs or bank statements to verify consistent income.

This final verification process is the lender’s last opportunity to detect financial changes that could impact your loan eligibility. If discrepancies or changes are found, the lender may delay closing or request more documentation and explanation. A new loan on your credit report or a change in employment could prompt a re-evaluation of your loan terms. The timing of this final review can vary but occurs within a few days to a week before the scheduled closing date.