The holidays may feel like a trap for first-time homebuyers trying to build savings for a home purchase in the coming year. Here are some homebuyer tips to keep the savings account intact and make home financing easier when the time comes.
- Make a realistic plan for your savings.
If you’ve budgeted a specific amount to add to your down payment savings each month, take a few moments before you start your holiday spending to decide if you will deposit the same amount during the holidays, a lesser amount, or even none at all.
Consider that financing your holidays with credit cards may not directly impact your savings, but it could create future problems. You’ll need to budget to pay the cards down in the coming months, plus you’ll have to pay interest, diverting funds from your savings later.
- Protect your home financing plans.
Remember that there’s far more to securing home financing than having a down payment. The amount you can borrow depends partially on your DTI ratio, or debt to income ratio. If you run up credit card debt, you may limit the amount you can borrow.
Your credit score is also important. You’ll need a good score to qualify for a loan in the first place, and your score also impacts the amount you pay in interest. The higher your score, the better the rate you can get.
One of the biggest factors that impacts your rate is the amounts you owe. If you max out your credit cards, your score will take a hit. The age of your credit is also important. Any new credit cards you open – even if they save you 10% on your purchase at the time – can ding your score and cost you even more in the future.
- Set a budget and spend cash.
With all of these reasons for avoiding credit card debt, number three seems rather obvious. Of course, you could use a debit card, but the idea is to determine how much you will spend, set aside that amount of cash in an envelope or even on a gift card you purchase for the reason, and stop when you run out.
- Increase savings by reducing spending. Here are some tips.
Include friends and family in your homebuying adventure. If you’re close to a home purchase, talk about it! Let your friends and family know what’s up and that you want to spend less or even skip gifts for the year. They’re likely to be excited and supportive. You can make it fun for everyone by giving Golden Tickets to a party in your future home.
Give experiences that come later in the year. Make a reservation or give a gift certificate for a special experience for later in the year – a promise for a night out when a special movie is released, a homemade gift certificate for a special event that comes to your town annually, or even reservations for a weekend getaway. Gifting an experience that you can pay for later makes it easier to work into a future monthly budget without impacting your savings.
Give your time.Have you heard your parents, grandparents, or even your friends talk about a project they’d like to complete? Give of your time, talents or, if it’s what’s needed, elbow grease to make it happen. Does your mom talk about all of the junk your dad has in the garage? A Saturday to clean it up will not only help them accomplish something they’ve wanted to do but also give you precious time together. And who knows – you might even score some vintage furniture for your new place!
Forego your typical travel. If you normally spend hundreds or even thousands of dollars to visit your family, choose to organize an online visit or two instead. No, it won’t be the same. But most of us got more comfortable with online gatherings during the pandemic, and we realized it’s possible. And next year, you can promise to host in your new home!
Change the party to a potluck. Rather than doing everything yourself, let others help bear both the workload and the cost. This isn’t just for entertaining. Consider sharing the load with gifts, too. You can give joint gifts with siblings, friends or coworkers. Or suggest drawing names and setting price limits for particular groups, such as coworkers, a circle of friends, or cousins.
With a little creativity, first-time homebuyers can still enjoy the holidays while protecting their savings and the other assets needed for home financing. What homebuyer tips would you add?