CHM Blog

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

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

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are getting a little support today. The MBS market worsened by -75 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) The Fed, 2) Central Banks and 3) Retail Sales.

1) The Fed: We will get the FOMC's Interest Rate Decision and Economic Projections on Wednesday at 2 pm ET followed by a live presser by Fed Chair Powell.

2) Central Banks: Our Fed is not the only game in town this week as we also get key rate decisions out of the People's Bank of China (expected no change), The Bank of Japan (expected no change) and the Bank of England (expected no change).

3) Retail Sales: The most important domestic economic release this week is Tuesday's Retail Sales.

Treasury Auction: We have an important 20Y Treasury bond auction on Tuesday.

This Week's Potential Volatility: High

This morning markets some initial support. Volatility has started at moderate levels but will increase to high on FOMC.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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