You started the year motivated to buy a home by getting your finances in order and raising your credit score. But then the holidays hit, and you get off track. Maybe you dipped into your down-payment savings or added debt to your credit cards.
While not the best choice when you’re looking to buy your first home, it's not unusual. Better yet, buying a home is still in your future!
Use these tips for ideas on how to handle your Christmas debt and still qualify for a favorable rate on your first home loan.
Assess the Damage
It’s natural to want to avoid the uncomfortable, especially when coming face to face with your debt. But if you want to know how to “fix your debt” you need to know how much there is to fix! Make an inventory of the debt you added as well as the new minimum payments.
Curb Overall Spending
Now that you have a better idea of your new debt, the next step is putting a halt to it. Be mindful of where your money goes and curb spending on extras like eating out or buying clothes. Look out for little ways to reduce spending like lowering your electricity bill, using coupons, or saving on fuel expenses. A little here and a little may not add much for saving but it does help you from digging yourself deeper into debt!
Paying off Debt and Saving Your Credit
There are different points of view to paying off debt. Some experts say to pay off the credit card with the least amount of debt. Others suggest putting the most resources into paying down the biggest debt. Yet, others suggest ranking the interest rates to determine which debt to pay off first.
No matter what method you choose, the most important part is that you don’t miss any payments. Missed payments lower your credit score, and a low credit score often translates to a higher mortgage interest rate.
Use Your Tax Return
Everyone’s taxes are different, and a generous return may not be in your future. However, if you’re expecting a good tax return this year, consider using a portion of it toward your Christmas debt!
Remember, you don’t need to be completely debt free to get an excellent rate on your home loan! Being on time with your payments, having a reasonable debt-to-income ratio, and having open credit are all factors that positively affect your mortgage rate --and your tax return may be just what you need to make that happen!
Going a little overboard with Christmas spending doesn’t take you out of the running for qualifying for your first mortgage. Give us a call today to get a more accurate assessment of your home buying power and next year you could be celebrating the holidays in your new home!