It’s time for our end-of-year new resolutions series to set its sights on home buyers. This installment: bad habits to break if you’re eager to snag the house of your dreams!
Usually we decide to stop our bad habits when the day of reckoning arrives. We stop speeding after we get a ticket, jettison our midnight ice cream binges when the jeans don’t zip, ditch our crippling mime obsession when family members threaten to walk out the door. And yeah, the same impulses hold true for home buying as well.
Unfortunately, many prospective home buyers don’t realize they should have put the brakes on certain self-defeating behaviors long ago. To help clue you in, here are six habits that home buyers should ditch pronto.
Lousy habit No. 1: Leaning hard on credit cards
It’s no secret that a “buy now, pay later” attitude can lead to getting in over your head financially.
“Credit cards can be addictive, and overuse can lead to poor decisions that adversely affect your ability to buy a home,” says Realtor® Denise Supplee with Long & Foster Real Estate in Doylestown, PA.
Typically, consumers should use no more than 30% of their available credit; consistently exceeding that amount can ding your credit score, making it harder to qualify for a mortgage.
“Forgo the temptation to buy that 60-inch, 3-D smart TV on your credit card, and vow to only use your plastic for purchases you intend to pay in full at the next billing cycle,” Supplee advises.
Lousy habit No. 2: Making credit card payments late, or not at all
Running up debt on your cards is a terrible idea, but so are late or missing payments.
“There are a lot of consumers who think it’s no big deal to miss a credit card payment, and I cannot stress enough how incorrect this is,” says Sacha Ferrandi, founder of Source Capital Funding, in San Diego. “Every missed credit card payment impacts your score.”
When it comes time to obtain a mortgage, a lower credit score translates into a more expensive loan and, in some cases, could cause your mortgage application to be denied altogether.
Lousy habit No. 3: Opening credit cards left and right
Everywhere you look, there are cool perks and freebies offered if you open a credit card. What’s the harm in taking them up?
Opening multiple cards—even if you don’t use them much—can signal a large spending appetite and ding your credit score. So try to open just a few cards you’ll use regularly and steer clear of any one-time offers at specific stores you don’t frequent often. Even if you don’t use the cards, the fact that you opened them will be recorded and count against you.
It’s important to keep up with your loan payments, even on student loans, whose terms are otherwise more forgiving than other types of loans.
New York agent Ali Jafri with Compass once worked with a couple who went into contract after beating out several other bidders for the apartment of their dreams. But the husband’s spotty record of student loan payments killed any hope of a decent interest rate, putting the property just outside the realm of affordability. Although they tried to renegotiate the price, the sellers wouldn’t budge, and the would-be buyers lost the apartment.
Take this cautionary tale to heart, and make all your payments on time.
Lousy habit No. 5: Keeping a near-zero bank balance
Let’s face it, stuff happens—your car needs new brake pads, your beloved cat needs chemo—and these things cost money. Lots of money! So having a financial cushion for these moments will help you avoid running up your credit card debt in the event of an emergency.
Plus, think about it: When you’re a renter, your housing costs are largely stable. They’re typically only your rent payment and utilities, because your landlord takes care of all property maintenance, updates, and repairs. But “homeowners need a much, much larger fund—as in, a fund in the four digits,” says Supplee.
But if disaster doesn’t strike, all that money can go toward a down payment on a home.
Lousy habit No. 6: Job-hopping
Been offered a new job or thinking of quitting the 9-to-5 grind to freelance? Think twice before you jump ship if you are planning to buy a home soon, advises Alexandra Axsen, managing broker of Lake Okanagan Realty in Kelowna, British Columbia.
“If you switch jobs, you will go through a probation period and will likely not be able to obtain a mortgage,” she says, adding that the one exception is a promotion or intercompany transfer. Steady employment translates to stability, which puts a lender’s mind at ease.