Holiday Spending vs. Home Loan Planning

December 29, 2019

Are you dreading the review of your finances in the earliest days of the year because of your holiday spending? Between October and January every year, credit card use spikes because of the shopping season. Black Friday, Cyber Monday, even New Year’s Day brings our use of credit nationwide into places it doesn’t go the rest of the year.

If you are thinking about your home loan options in the new year, remember that credit card debt affects your debt-to-income (DTI) ratio, which the lender will calculate at FHA loan application time. Debt ratios are an important factor in home loan approval--don’t underestimate the power of your debt-to-income ratio to affect your loan application. Are you ready to apply? Or do you need more time to review your finances?

Holiday Debt Deadlines

For some borrowers, the amount of credit card debt, even holiday spending, isn’t as much of a problem--it’s the timely payments that become a factor. You may have been tempted at holiday time to skip payments in order to free up more buying power.
 
But if you missed a payment within 12 months of your FHA mortgage or refinance loan application, the lender will have trouble approving your home loan. Experts recommend at least 12 months of perfect payments on all credit before applying for new credit.

Pulling your credit report as early as possible and reviewing your payment habits will help you manage your personal finances more effectively ahead of your loan application.

Make A Budget and a Plan

If you already had a plan and a budget going into this holiday spending season, you are likely ahead of the game when it comes to being ready for your mortgage loan process. But if you didn’t have a plan, now’s the time to review your credit and your payment record and get things on track or back on track.

Those who aren’t sure how to plan or budget for a home loan should consider contacting the FHA directly at their toll-free number, 1-800 CALL FHA. When you speak to an FHA rep, request a referral to a local, HUD approved housing counselor who can help borrowers with pre-purchase planning issues including budgeting, credit, and more.

Those who have not fully committed to buying a home in the new year should, going forward, handle their finances as though they HAVE committed, just in case. Resist the urge to skip payments on your credit cards, maintain credit card balances that are as low as possible, and very importantly, avoid applying for new lines of credit leading up to your home loan application.

Take these steps early for best results and you will be well on your way to becoming a homeowner.

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