DISCLAIMER: I AM NOT A LENDER and I do not claim to be one. All opinions expressed here are merely the suggestions and observations of a real estate agent. For advice on how to qualify for a mortgage loan, contact your local lending professional.
So it’s Thanksgiving Day and you’re scouring the retail ads and your email inbox for the best Black Friday and Cyber Monday deals you can find. The fact that you plan on buying a home in the first quarter of 2015 has taken a back seat in your mind to that image of yourself scoring that big screen TV you’ve been dreaming of for the last 15 years, or snatching up clothes and toys at garage sale prices for all the little minions and munchkins on your list.
If you’re serious about buying a home in the next three to six months, before you brave the crowds, the cold, or any retail site server, read this article. This is advice you need to hear. You’ll thank me later. You’re welcome.
Mistake #1. Being completely oblivious as to how your holiday shopping will affect your ability to get a loan.
Right now, it’s easy to focus on having fun and enjoying the holidays and we all know it takes money to do that. However, if you plan on buying a home in the first quarter of 2015, your lender is going to be looking very closely at your credit history in the first months of the year, specifically focusing on how much money you owe in relation to how much money you have coming in. If the lender is running your credit report in January and sees that you spent thousands on holiday travel, gifts and the like, your debt-to-income ratio is likely to be disproportionately higher than it might have been before the holidays or at another time of year.
Does that mean you have to settle for handing out stale Halloween candy and half-open sticks of gum from the bottom of your purse as Christmas gifts? No. For God’s sake, keep your nasty pocketbook kibble to yourself. What I’m saying is that you should set aside an amount for your down payment and estimated closing costs before you do any holiday shopping. (Find out how much you need.)
Mistake #2. Making big ticket purchases during the holidays that require that you open a credit account.
Whether you decide to spend precious digestive time standing in line on Black Friday freezing your tushy off for that absurdly large flat screen or you decide to join millions of others clicking their fingers numb at work on Cyber Monday, when you do shop, you should only spend the amount that you can pay off within the next 30 – 45 days.
Let me repeat that. You should only spend what you can pay off within 30-45 days. IF YOU CAN’T PAY IT OFF BY FEB. 15, DON’T BUY IT!
Why? Because even if you get a great deal on an item with “NO INTEREST UNTIL 2016”, you’re still adding another line of credit to your credit report. The fact that your payments don’t start until later won’t matter as much because your lender is looking at your long-term credit viability. It’s not just about whether you can afford the mortgage today. You need to be able to afford it for the life of the loan. That’s likely the next 30 years.
Mistake #3. Not understanding exactly how much cash you really need to buy and move into your new home.
It can be expensive to move. Homebuyers often fail to account for what it will cost them above and beyond their down payment and closing costs to move and make their new home ready for their arrival. Besides the costs of the moving company and travel, be sure to account for the cost of turning on utilities, cable, etc. And if you bought a house that needs improvements, you’ll need money for those as well. Did you plan on painting? Repairing holes in the walls? Getting the carpets cleaned?
Even though you likely haven’t found your dream home yet, you can estimate a reasonable cushion and go from there.
And there they are, folks. Three mistakes you can avoid this holiday season that have the potential to keep your dreams of home ownership from becoming a reality. Happy Thanksgiving. Shop smart!