Many of us do not quite understand how the credit companies come up with a "magic credit score" that determines how much we can borrow and at what rate. Moreover, borrowers do not realize how important it is to maintain that number in between the time the Loan Office issues that pre-approval letter and the time the borrowers close on their mortgage.
I have had borrowers no longer qualify for a mortgage because they decided to charge all the furniture they need to buy for their new home. They got caught up in the moment, not realizing there will be no place to set up all those new leather recliners and matching love seats after their credit score dropped below minimum number needed to qualify for their loan. Another borrower forgot to mention they loaned their daughter an extra $3,000 for room and board at the beginning of the semester, which depleted one of their savings accounts.
All of these actions affect their creditworthiness. When you are pre-approved for a mortgage, the approval process is based on a snapshot of your financial situation at that time. Borrowers provided a bank statement that said they had $5,000 in their savings, which would cover all their closing costs. After these well-meaning parents loaned their daughter college funds, they no longer have enough liquid assets to cover the out of pocket costs for closing. The savvy shopper might have gotten a great deal on furniture, but the hidden cost was a decrease in her credit score.
Borrowers must remember to maintain and protect their credit at all cost. You might feel like you are putting life on hold for a while, but getting the home of your dreams will be worth the short-term sacrifice.
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