The hidden price of holiday spending: Your dream home at risk

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Published Date 12/16/2024

Saving for a rainy day — or a house — is not on as many people’s minds, it seems, as this year Americans are spending like crazy.

Realtor’s Jillian Pretzel reports that consumers spent a whopping $10.8 billion on Black Friday—up a significant 10.2% increase from last year. “While this might be good news for those hoping for a great gift from loved ones, it does raise the question: Could holiday spending hinder your chance to buy a house?” The short answer, she says, is yes.

“With nearly a third of Americans still paying off last year’s holiday spend, running up another big tab on charge cards this year will have a profound impact on a potential homeowner’s short-term aspirations of buying a home,” says strategic financing advisor Doug Perry. Experts are saying that extra purchases during the holiday season, and any time of year, could hurt your chances at closing an escrow. How to avoid trouble?

For one, don’t make purchases on credit cards. It’s easy to figure out not making large purchases (a car, boat, new TV) until after escrow closes. But many mortgage experts advise their clients to stop using their credit cards completely during this time, since using one can quickly add to your debt, negatively impacting the terms of the deal, or your qualification status.

Keep in mind that a credit check will be run not only as part of the pre-approval process, but for a second time just before close of escrow. And if the lender sees you took on additional debt, you might find yourself with a higher interest rate, a larger down payment, or worst of all, disqualified from the deal, making you lose out on your house altogether — especially true if you have just barely qualified for the loan to begin with.

Best practice? Put those cards away, pay cash for purchases, and pay down your debt if you are seriously shopping for a home. You’re either committed to purchasing things with cash or holding off those purchases altogether.

Of course, there may be exceptions to this if a true emergency arises. But it’s wise to communicate with your lender first, as it may take months, or years, to recover financially from a spending blunder. New York-based lender Fred Goncher says he advises his clients by handing them his own “10 Commandments of Borrowing,” among which he advises them to communicate with him when making purchases. And his track record seems to indicate it works, as over a 37 year career, violating his commandments have happened only twice — in both cases, the purchaser bought a car, essentially killing the deal.

The bottom line? Play it safe when shopping for gifts or making purchases when your intention is to buy a home or close escrow on one you’re already on contract for. That might mean being open with loved ones about how you are focused on saving or budgeting for a home so your gifts during this holiday time might be minimal. Smart buyers will avoid pricey stores and watch their wallet carefully, this season—and all year long. Because your desire for a home must be so much greater than the want for something immediate.

Realtor, TBWS

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