‘Tis the season to spend big on your friends, family, and other loved ones. However, if you’re considering buying a home in the early part of next year or during the busy holiday season, take heed. It is important to curb your spending a bit before beginning the mortgage application process. This is especially important with the temptation of Black Friday shopping just around the corner. Below are a few of the important reasons to watch your holiday spending:
Higher than Average Credit Charges may be a Red Flag to Lenders
Many lenders view higher than normal credit card activities to be a red flag and will sometimes deny credit based on concerns of borrowers’ abilities or inclinations to repay the loan. Mortgage lending is a business of big risks. Lenders use complex calculations to determine the amount of risk each borrower represents. This is one of the tools to help with that determination.
If you feel you must spend, use cash, rather than credit cards, to spend this holiday season. This will help you spend within your means and hopefully leave you with the funding you need when buying a home.
Available Credit Matters
Most credit cards have a credit limit. Your available credit is the total the amount of credit extended on all cards and other loans minus the amount of debt still owed. Abundant holiday spending reduces your available credit substantially. Experian recommends maintaining a utilization rate of less than 30 percent, if you hope to purchase a home.
Even if you intend to pay the debt off when Christmas accounts mature or once you receive holiday bonuses from work, the hit to your available credit, depending on how close to the mortgage application process it occurs, can hurt your interest rate as well as your chances of approval.
Slow and Steady Wins the Race
Finally, mortgage lenders like to see consistency in spending and payments over a period of six months or a year. Sudden spikes, even during the holidays, can make them cautious about lending.
For many people, the mortgage application process can be a bit of a mystery. At Starboard Financial, we prefer to take the mystery out of the process for you so you can enjoy a better home buying experience. And remember, it’s the thought behind your holiday gifts, not how much you spend. Let our team at Starboard Financial help you share our thoughts with you on how to save before you shop for homes. Contact us here for more information.