3 Financial Decisions That Could Jeopardize Your Homebuying Plans

Purchasing a home is often regarded as one of life’s most significant milestones, requiring meticulous planning and financial discipline. While most prospective buyers focus on saving for a down payment or securing a pre-approval, they may overlook seemingly minor financial decisions that can have profound consequences on their ability to purchase a home. In this article, I’ll share three real-world examples from my clients that illustrate how small, seemingly inconsequential choices can derail the homebuying process.

1. The Hidden Consequences of Cosigning a Loan

One of my clients approached me eager to purchase his first home. He had diligently saved for a down payment, maintained steady employment, and felt financially prepared to take the next step. However, during the pre-approval process, we encountered a significant issue: a car loan for which he had cosigned on behalf of a friend.

From his perspective, cosigning was a simple favor—his friend made all the payments, so he assumed it wouldn’t affect his ability to qualify for a mortgage. Unfortunately, lenders view cosigned loans as shared financial responsibilities. The car loan’s monthly payment of $475 was included in his debt-to-income (DTI) ratio, significantly reducing the loan amount for which he could qualify.

We explored ways to mitigate this issue. In some cases, lenders will exclude a cosigned loan from a borrower’s DTI if they can provide documentation—such as 12 months of consecutive payments made by the primary borrower directly from their account. However, since this loan was relatively new, my client could not meet the 12-month threshold. As a result, he had to postpone his home purchase by a full year to establish the necessary payment history and improve his financial position.

Takeaway: While cosigning a loan may seem like a harmless act of generosity, it can significantly impact your financial profile and limit your homebuying options. Always consult with a mortgage professional before agreeing to cosign, especially if you plan to purchase a home in the near future.

2. How a Store Credit Card Added $30,000 in Interest Costs

Another client, eager to purchase her first condominium, learned the hard way that even minor credit decisions can have major repercussions. During the homebuying process, she opened a store credit card to take advantage of a promotional discount on a $500 furniture purchase. Unbeknownst to her, the card’s $500 credit limit meant that her purchase immediately maxed out the account.

When her credit was re-evaluated during underwriting, the impact of the new account and the high utilization caused her credit score to drop by 25 points. This seemingly small drop was enough to push her into a higher mortgage interest rate bracket. As a result, her monthly payment increased by $80. Over the life of a 30-year loan, this equated to nearly $30,000 in additional interest.

Although she was still able to close on her home, the higher mortgage rate stretched her budget and caused unnecessary financial stress. She expressed frustration at how such a small decision—one that initially seemed financially advantageous—had such a long-term impact.

Takeaway: Opening new credit accounts, even for minor purchases, can lower your credit score and increase your borrowing costs. Avoid any changes to your credit profile during the homebuying process, and consult your lender before making any financial decisions.

3. The FHA Self-Sufficiency Test: A Hidden Obstacle for Multifamily Buyers

A third client came to me with a vision of purchasing a multifamily property. She had been pre-approved for a two-unit home using an FHA loan and planned to live in one unit while renting out the other to offset her mortgage payments. During her search, she discovered a three-unit property that seemed perfect—until we hit an unexpected roadblock: the FHA self-sufficiency test.

This test is a requirement for FHA loans on three- and four-unit properties. It mandates that the property’s rental income must be sufficient to cover the entire monthly mortgage payment, including principal, interest, taxes, insurance, and any applicable HOA fees. To calculate this, lenders use the lower of actual market rents or the appraiser’s estimated rents, reduced by a 25% vacancy and maintenance adjustment.

In high-cost housing markets like New York City, this rule often poses a significant challenge. Property values tend to far outpace rental income, making it nearly impossible for multifamily properties to pass the self-sufficiency test. Unfortunately, the three-unit property my client wanted did not meet the required rental income threshold, even though she was financially capable of handling the payments.

Unlike three- and four-unit properties, two-unit homes are exempt from this test, which is why her original pre-approval for a duplex remained valid. In the end, she had to refocus her search on two-unit properties or explore alternative financing options that required a higher down payment.

Takeaway: Multifamily properties can be an excellent investment, but the FHA self-sufficiency test for three- and four-unit homes adds a layer of complexity. Buyers should work closely with their lender to fully understand these requirements before committing to a property.

The Importance of Proactive Financial Planning

The experiences of these clients highlight the critical importance of proactive financial planning and regular communication with your lender. Small decisions, such as cosigning a loan, opening a store credit card, or selecting the wrong type of property, can have far-reaching implications on your ability to secure financing or achieve favorable loan terms.

If you’re considering buying a home, make it a priority to consult your lender before making any financial moves. By seeking expert guidance early and often, you can avoid costly mistakes and stay on the path to homeownership with confidence.