That old “it’s the holidays, anything goes” attitude can hurt you — especially if you’re looking to buy a home in the new year.
I know you’re feeling jolly and merry and such, but being flippant with spending, opening new credit card accounts or just going overboard on the holiday celebrations can all come back to haunt you when it comes time to buy a home.
Want to make sure you’re on the right track toward homebuying? Then avoid these dream-killing holiday habits starting NOW:
Credit utilization — or the total amount of available credit you’re actually using across all your accounts/cards — plays a big role in your credit score. And that credit score? It directly impacts what mortgage rates you’re offered, what loan products you qualify for and what you can afford when home shopping.
To keep your credit utilization (and overall credit score) low, avoid racking up credit card debt during the holidays. Stick to using cash or a debit card, and if you need to, utilize layaway services for higher-priced items. Keep that spending in check!
Those store-branded credit cards can sure be tempting — especially when they come with discounts or no-interest periods, right? Unfortunately, applying for a store card (or any credit card for the matter) means a hard credit pull. Hard credit pulls drag down your credit score and your future mortgage rates along with it. Avoid them at all costs.
Driving a few hours to grandma and grandpa’s house? That’s fine. Spending $5,000 on a trip to Hawaii? That’s probably not a smart idea. Not only does it take cash away from your home purchase (you’ll need quite a bit for your down payment, closing costs and reserves), but it also shows lenders that you’re not all that responsible with money. When buying a home’s on your radar, it’s best to keep spending habits close to the chest. Rein it in, and only purchase what you absolutely need.
Don’t get a lot of vacation days around the holidays? You might be tempted to take some unpaid leave to visit friends, do your Christmas shopping or just spend time with family. Unfortunately, gaps in income are never a good thing when buying a home. Mortgage lenders need to see that you have consistent, reliable income and can comfortably cover your mortgage payment month after month, year after year. Weeks or months without regular income can send up a serious red flag to your lender.
New Year’s and Presidents’ Day often come with big discounts on things like cars, motorcycles and other high-dollar items. As tempting as it can be to take advantage of these deals, spending a huge chunk of change right before buying a home is never smart. Not only does it mean taking cash away from your home purchase, but if you have to take out a loan to buy that car or other big-ticket item, then it means more debt and a lower credit score, too. Both can ding your mortgage rates and your chances of buying a home.
Considering a “new year, new you” career move? You may want to hold off until you purchase your home. Just like with income, lenders like to see consistent employment, too — ideally at least 2 years at the same job. They’ll even verify your job (and income) with your employer before approving your loan. Changing jobs just before applying for a loan — or worse yet, in the middle of your application — can dash those homeownership dreams in a heartbeat.
It’s easy to get caught up in the celebratory mood of the holidays. But going out too much, ordering take-in or just over-indulging? That can put a serious dent on your bank account — and your home buying budget, too. If you use cards to cover those indulgences, it could also hurt your credit score. Try to keep the eating out and indulging to a minimum this season and stick those delicious Christmas leftovers instead.
If you’re thinking of buying a home in 2019, then celebrate conservatively this holiday season. Keep your spending in check, avoid big-ticket purchases and new credit cards, and stay consistent with your workload and income. If you can avoid the temptations and stay financially healthy, you’ll be well on your way to that dream home next year.
To get personalized advice on buying a home in 2019, contact a SnapFi team member today.