ResalesPlan on Buying a Home Next Year? Then Keep Holiday Spending to a Minimum
If you"re close to buying a home in the coming year, then you"ll want to
keep an especially close eye on your holiday spending - you don"t want to
hamper your chances of getting a loan, and you"ll want to be sure you have
plenty of cash on hand in your first year of homeownership.
The International Mass Retail Association in a late October survey estimated
that holiday shoppers will spend an average of $863 on gifts this year.
However, they ultimately end up spending some 15 to 30 percent more, the
association says.
Because your credit history is so important in obtaining a loan, you"ll want
to refrain from opening any credit accounts for major appliance or
electronic purchases. You"ll also want to avoid running your existing credit
cards to their limits.
Why? When you apply for a mortgage, the lender may request a credit score as
well as a credit report. A credit score is a computer-generated number that
indicates your ability and willingness to repay a debt based on your credit
record.
Your credit score is one of the pieces the lender will consider in
determining whether you"re approved for a loan. Your credit score may also
be used to determine the mortgage interest rate.
For example, says Freddie Mac, if you charge up to the limit on your credit
cards - even if combined they don"t add up to a lot of money - this might
hurt your credit score. Or, if you have recently applied for a number of
credit cards - even if you haven"t begun to use them yet - your credit score
might be affected.
However, if you show a pattern of managing your credit wisely, keeping
credit card balances low and paying your bills on time consistently, your
credit score will be positively affected.
Also, try your hardest to keep from using credit to pay for holiday gifts.
Also, don"t be tempted to take a holiday dip into the money you"ve set aside
for a down payment for a house.
You may think you have that 3, 5, 10, or 20 percent down payment, but you"ll
also need to have some cash available for closing costs, which will usually
run between 2 and 7 percent of the property"s value. Closing costs cover
taxes, recording fees, inspections, prepaid loan interest, title insurance,
financing costs, and points - the dollar amount paid to a lender for
obtaining a lower interest rate on a loan.
In addition to the down payment and the closing costs, you"ll need to have
some cash to move, for homeowners insurance - the Insurance Information
Institute estimates that homeowners will spend an average of $603 in 2003 on
homeowners insurance - property taxes, and maintenance and repairs. And
don"t forget furnishings and other household items once you move in.
So, with that in mind, the best thing to do as you tackle your holiday
shopping is to plan ahead and do your homework.
The National Foundation for Credit Counseling, which helps more than 1.5
million households annually, offers the following tips to stay on financial
course this holiday season:
Develop a budget. Determine who you"re buying for and how much you plan on
spending.
Look for other ways to pay for holiday gifts. Can you put in some overtime
to earn extra money? Do you have time to work an extra job during the
holidays? Can you adjust your household budget - perhaps exclude your
monthly or weekly dinner and movie out?
Try to avoid shopping at the last minute. The stress will lead you to buy
whatever"s easiest, not most economical.
Look for deals and sales. Scour the weekly ads. Look for deals and coupons
on the Internet.
Keep track of how much you spend. Once your shopping is done, don"t spend
any more on the holidays.
Pay off any debt in full in January. Try to limit credit card use during
the holidays, but pay it off once you receive your first-of-the-year
statement.
And next year, once you own your own home, you may want to take advantage of
a Christmas savings club in which you set aside a certain amount of money
each month to spend on gifts in December. Or you may be eligible to take
advantage of Fannie Mae"s "power payment" mortgage, a pilot project win
which every so often, twice a year and up to 10 times during the loan term,
you can skip a payment and not incur a late penalty or credit-report black
mark.