The holiday season… a time for gathering with loved ones, making merry, and spending indiscriminately.
For many across the U.S., the holidays aren’t complete without indulging in numerous gift purchases (often enabled by the easy convenience of credit cards). According to a 2015 survey by Harris Poll, 65% of Americans will use credit cards for some of their holiday spending (and many will take three months or longer to pay off their holiday debt). And while this statistic may not be surprising, those of us planning for a new home purchase in the new year should take note.
In order to get a qualified mortgage, a borrower must not exceed a 43 percent debt-to-income ratio (per the Consumer Financial Protection Bureau). (For all the details on DTI, check out our debt-to-income article.) This means that your total debt (i.e. auto loans, credit card bills, etc.) cannot surpass 43 percent of your gross monthly income at the time you get a mortgage, even if it’s debt that you’re planning to pay off within a few months. In other words, if you find yourself overdoing it during this year’s holiday shopping extravaganza and end up with leftover credit card bills, your debt-to-income ratio could throw off your ability to secure a home loan for the amount you want early in the new year.
To prevent this scenario from playing out and getting delayed in your homebuying process, it’s a smart idea to approach this holiday season with a financially sensible game plan. And no, that doesn’t mean your family needs to completely abstain from fun and tradition. Just use our tips for getting creative about getting in the spirit without going overboard.
Embrace DIY: Homemade and Heartfelt
To avoid getting into debt with your gift budget, make a family rule that this year’s holiday presents have to be homemade and heartfelt. Countless websites offer DIY gift ideas for a range of ages, abilities and supply costs. Once you get started crafting your own gifts, you may just fall in love with the practice. After all, a handmade gift – unlike a gift card or a similarly easy but expensive item - often showcases the thoughtfulness and attention of the gift-giver.
Create New Food Traditions
Visit your local library and check out a few holiday-themed cookbooks, and browse websites like Epicurious to discover some fun new recipes worth trying. Then, collect ingredients and get cooking as a family (while playing your favorite holiday tunes in the background). Cookies, comfort foods and cold-weather drinks are fun and satisfying ways to make the holiday season special. You may stumble upon a dish so delicious that you decide to make it a new annual tradition.
Explore Holiday Events Around Town
Every major city (and most small towns) offers free holiday-themed events for local residents. Enjoy the décor and the people watching with your loved ones by attending a parade or festival, walking through a craft market, ice skating in a public park, or viewing elaborate lighting displays. These events will help the whole family get in the holiday spirit, without spending a dime. Search for local event calendars and listings to identify some no-cost options near you.
Share the Love: Help Those in Need
Instead of showing your love and affection by spending money, choose to spend time instead – particularly in service of those less fortunate. As a family or a small group, you can volunteer for numerous organizations, projects and initiatives connected to holiday giving. Wrap and distribute gifts for children of low-income families, assemble food baskets or serve meals for the homeless, or make presents for senior citizens in nursing homes. Locate nearby holiday opportunities through a site like VolunteerMatch.
Make Holiday Plans for Your New Home
Build a sense of anticipation and excitement about your future new home by creating a family bulletin board or Pinterest page for everyone to add their own ideas for your future holiday décor, games, recipes, gifts and activities. While some short-term patience and sacrifice may be required, a vision board will help the family imagine how much holiday fun you’ll all have next year in your beautiful new space. You’ll also be able to envision all the memories you’ll make in the future in your very own home.
If you’re hoping and planning for a new home in 2017, these tips will help you create a fiscally-responsible plan for the holiday season that ensures you don’t rack up debt, but still leaves room for fun. With a little creativity and collaboration, you and your loved ones can simultaneously create lasting memories and financial peace of mind.
Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. Please consult your tax advisor. All calculations and information shown here are for illustrative purposes only. All third parties listed above are for demonstration purposes only and are not affiliated with LendingHome. All views and opinions expressed in this post belong to the individuals referenced. NMLS ID: 1125207 Terms, Privacy & Disclosures. Copyright LendingHome Corporation 2019.