The countdown to Black Friday has already been seen on Facebook and perhaps some of your overzealous friends have posted updates that their holiday shopping is complete. It seems to happen earlier and earlier each year. Matter of fact, holiday commercials have already been seen on TV!
You may be feeling pressured to whip out your credit card and start buying and wrapping gifts. If you are a potential home buyer, you might want to hold off on the holiday spending spree, because those purchases can hurt your chances at home ownership.
Here is how:
- Once you have been pre-approved for a loan, any large credit purchases or changes in your debt can impact your ability to secure that loan. Debt to income ratio is important. The last thing you should be doing is racking up your debt with gift purchases.
- The bank will be rechecking your credit situation once you place an offer on a house and it is accepted, basically before they proceed with processing your loan. So just because you have a loan approval, doesn’t mean they won’t take it away if you overspend.
- With increased debt your credit score will be affected by your credit utilization, or how much of your credit is actually used. Your credit utilization ratio accounts for almost 30 percent of your credit score. This ratio is the amount of credit you’ve used compared to the total amount of credit you have available on your credit cards. The lower your ratio, the higher your score will be. This affect your interest rate and if you qualify for the loan.
How to manage gift buying and house buying
Best advice is to rethink your level of gift giving this year. Perhaps you are normally a bit over-the-top with your kids or your parents’ gifts. That is fine – just maybe not this year.
Try and keep this year’s shopping simple:
- Set a budget for holiday shopping and stick to it.
- If you need to use a credit card, make sure it is really necessary-no impulse spending.
- Explain to those close to you that you are under a strict budget this year due to house shopping. Set expectations lower.
- If your extended family is large, ask about everyone doing a Yankee swap or drawing on name out of a hat to buy for. Maybe others have felt this financial stress too and will thank you!
- Shop for sales and online deals that you can pick up in-store to save on shipping.
Finally, remember to focus on what really matters this holiday season, family, friends and eventually being able to move into a new home.