By Cheryl Reid-Simons
With the holiday shopping season fast approaching, fewer than half of Americans will have any savings set aside for buying gifts, relying instead on credit cards to absorb the extra expenses, according to a recent report by credit reporting company TransUnion. But if you’ve resolved to buy a home in 2014, that could be a mistake.
Mortgage specialist Eric White with Caliber Home Loans said a lot of would-be home buyers mistakenly give up, assuming they won’t qualify for a mortgage and stop trying to get in financial shape to buy a home. And in a city where home prices are within reach of most, that’s unfortunate.
"In all reality the vast majority can qualify," White said. "If you have reasonable credit and a minimal amount of down payment, you can become a homeowner."
The first step is taking it easy on the credit cards this holiday season. Home buyers need to make sure they’ve got some cushion in their credit card limits. White said one of the most frequent stumbling blocks for people seeking a mortgage is having maxed out credit cards.
If you have a $1,000 limit on a card and charge $900 for holiday gifts, mortgage lenders will be concerned. So White urges people to keep balances at no more than 50 percent of the allowed limit. You may be surprised at how low your card limits are.
"Credit card companies are keeping limits lower these days," White said. "That availability really impacts your credit score."
White said some borrowers mistakenly close accounts before applying for a mortgage, thinking excess credit available will look bad.
"The credit scoring model gives you more positive marks the more you have available that you’re not using," he said. "So if you have a $10,000 credit card limit but you’re only using $1,000, what it shows is fiscal discipline."
White says most home loans will require a 3.5 percent down payment, and often that doesn’t even have to be your own money. It can be a gift from a relative, White said.