Saving Loans!! Why Opening New Credit While Under Contract Could Jeopardize Your Home Purchase

 


Why Opening New Credit While Under Contract Could Jeopardize Your Home Purchase

Well, it finally happened.  About to issue a clear to close and we execute a soft pull on the home buyer's credit report only to find a new line-item!  A NEW CREDIT CARD!!!  AND OVER 50%  of the limit is already used up.  The client tells me it was urgent and it was.  What do we do now?  Is there dream of homeownership about to be crushed?? 

Buying your first home is one of the most exciting milestones in life. You’ve found the house, your offer has been accepted, and you’re under contract. The finish line feels close—but it’s also the most critical time to avoid financial missteps that could derail the entire process.

One of the biggest pitfalls? Opening a new line of credit.

Why New Credit Can Put Your Loan at Risk

When you’re under contract, your mortgage approval is based on the credit profile you had when the lender issued your pre-approval. Opening a new credit card—even if you don’t carry a balance—can negatively affect you in several ways:

  • Credit Score Impact: Every credit inquiry has the potential to lower your score. Even a few points can make a difference in qualifying for the loan or determining your interest rate.

  • Debt-to-Income Ratio (DTI): A new revolving account increases your available credit and could add new minimum payment obligations. Even small changes in monthly debt can throw off the delicate balance of your DTI calculation.

  • Perception of Risk: Lenders may view new credit as a sign of financial instability. It can raise questions: Why does this borrower need more credit now? Will they continue to open new accounts?

Real-Life Fallout

Imagine this: You’re under contract to buy your first home. You decide to apply for a new credit card to furnish your future living room or take advantage of a store promotion. When your lender runs a final credit check before closing (yes, this happens), they discover the new account.

The result?

  • Your approval status could be suspended.

  • The underwriter may require additional documentation, causing delays.

  • If your DTI ratio is pushed too high or your score drops below qualifying guidelines, your loan could be denied altogether.

Can the Loan Be Saved?

The good news is that a loan isn’t always doomed just because new credit was opened. But it takes quick action and expert guidance. Here’s what often happens behind the scenes:

  1. Recalculation of Ratios – The lender must update your file with the new credit obligation, reassessing your DTI and credit score.

  2. Additional Documentation – You may be asked for proof of the account, statements, or explanations of why the credit was opened.  You may need a statement from the new account

  3. Potential Program Change – If your original loan type no longer works, your lender may explore alternatives (e.g., FHA vs. Conventional) to salvage the deal.

  4. Seller Implications – If delays occur, the seller may need to agree to extend closing deadlines, adding stress and uncertainty to all parties involved.

How to Protect Your Home Purchase

The best way to avoid this pitfall is simple: do not open any new credit accounts while under contract. That includes credit cards, auto loans, furniture financing, or even co-signing for someone else.

If you’re considering a financial change—big or small—talk to your lender first. They can help you understand the impact and guide you toward the best path to keep your loan secure.

Final Thought

Sometimes luck plays a part or the hand of  God.  In this case we were able to make a payment on the card to get it below 30% before they reported to the credit bureaus. Next we asked the new credit card company to send us a statement, we got lucky, as the billing date just so happened to coincide with our request for a statement. Finally, when we recalculated the Debt-To-Income ratio (DTI) we were still below the DTI limits for an FHA.  We were able to get our clear to close and closed on time! Yay, God!

As exciting as it is to plan for life in your new home, remember that the mortgage process is built on consistency. Your financial profile should look the same (or better) at closing as it did when you first applied.

A quick conversation with your loan officer before making financial moves can mean the difference between celebrating at the closing table—or scrambling to save a deal that’s suddenly at risk.

Location: McKinney, TX, USA

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