Don't Ignore the 'Quiet Period'

A couple looking at a laptop computer. The man is holding the laptop while the woman sits behind him, holding a document.

It's important that you don't take on any new debt or make other changes to your financial profile during the "quiet period" — the time between your mortgage approval and the date you actually close on your house.

Wait until you’ve closed on your house before making any changes to your financial profile.

Congratulations! You’ve found your dream home, you’ve been approved for a mortgage and you are waiting to close. Now freeze.

You’ve entered the financing equivalent of “The Twilight Zone,” that critical time warp where too many home buyers do something silly that changes their all-important debt-to-income ratios (DTI). If you do that, you might be pushed into accepting a higher interest rate on your loan than you planned. Or worse, you could lose the financing altogether.

It used to be that once you passed muster for a loan, it was clear sailing. But that was before the mortgage meltdown when lenders were looking the other way. Nowadays, borrowers are underwritten twice, once to gain approval and again a few days before the closing to make sure you haven’t piled on more debt than you can handle during the intervening “quiet” period.

The key is your DTI, or how much you owe on a recurring basis compared to what you earn every month. If it gets out of kilter, all bets are off.

Unfortunately, not every buyer is told not to give the lender a reason to renege. And many do. Not intentionally, of course. In fact, some of the things people do during the quiet period are normal, everyday occurrences. But they do them. Even when instructed not to.

According to a recent study of more than 100,000 loans, one in every eight borrowers obtains a new credit line during the weeks prior to closing. Traditional underwriting guidelines and ratios take into account everyday living with existing credit lines. But new ones rock the boat, and some borrowers fall overboard.

The biggest mistake, perhaps, is buying a car, which adds significantly to your debt load unless you are paying cash. Ditto for a boat. One guy we heard of decided to purchase a $100,000 Hummer two weeks before closing on a $1.5 million house. When the bank got wind of his new wheels, it drove off into the sunset because the buyer’s DTI was no longer in line. And the buyer, who already was on the edge, lost the deal — as well as his $50,000 earnest money deposit. (Actually, you can mess up your chances big time by buying a car even before you apply for a loan because it adds to your total debt service. So if you are in the market for a house, put off buying a car until after you close.)

A car isn’t the only thing that can sink your mortgage. Any kind of big ticket item can have the same effect. It’s not like you have to stop living, but any significant change out of the ordinary can cause your lender’s antenna to wiggle.

Sure you are going to need furniture in your new place. But unless you can pay cash, wait to order that dining room set until after you close. Even if there won’t be any payments due for six months, wait. The same goes for joining a gym. That recurring monthly charge also is considered debt by lenders.

Don’t change jobs during the critical weeks before closing, either. And don’t dig into your nest egg to pay cash for something big that you don’t absolutely need right away. Banks want to be certain you have enough cash on hand to make two and sometimes more monthly payments should something happen like a major illness or layoff. Even moving money around from one account to another could be deadly.

The rule of thumb here: When in doubt, ask your loan officer first.

Lew Sichelman is a nationally syndicated housing and real estate columnist. He has covered the real estate beat for more than 40 years.

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