Stop Before You Shop

The holiday music has already replaced the background music in many stores, which usually means the pressure of gift buying is quickly rolling in. Before you shop until you drop, take a step back to remember your larger goals, and how mindless spending (and over-spending) can put a big dent in your finances, and set back your long-term plans.

If you're planning to buy a new home in the new year and already have a pre-approved mortgage, good for you! But before you celebrate this big step toward financing your next home, be aware that what you do between the mortgage pre-approval and the actual closing of your home purchase can adversely impact the chances of your loan actually going through.

First of all, it's important to recognize that just because you've been pre-approved for a loan of a certain amount, it doesn't mean you should plan to utilize that full amount towards the sales price of the home. Buying a home is about so much more than selling price — closing costs, taxes, home insurance, private mortgage insurance, moving costs, maintenance costs, painting, decorating, new furniture and maybe appliances too ... these expenses all need to be planned for, on top of your mortgage.

Even if you recognize your home buying budget limitations, you might still be feeling flush with money now that your home loan has been pre-approved. That's not an excuse to run out and buy all new furniture and appliances for your new place! In fact, put the brakes on all big purchases for now, as if your debt-to-income ratio becomes skewed, your lender may become concerned about your ability to repay the home loan, and pull the rug on the paperwork. Also refrain from signing up for a new credit card during the time between your mortgage preapproval and the closing of your home purchase. Not only can applying for a new credit card lower your credit score, if you do get the card and start using it, your debt load will rise and again, could affect your debt-to-income ratio.

If you have any family members feeling generous this holiday season who decide to present you with a cash gift toward your new home, make sure you disclose those large bank deposits to your mortgage loan representative first. Likewise, discuss any large withdrawals that could significantly decrease the amount of cash reserves your pre-approval was based on.

One thing you may not be able to control, but still need to be aware of, is that you ideally shouldn't switch jobs just before closing on your new property. Even if you secure a better-paying job, your lender needs to be assured you have a steady income and as such may delay the settlement until they receive verification and view your pay stubs from your new employer.

Continue to save more money than you spend as your closing date comes closer. Pay your bills on time to reinforce your financial stability, and never give creditors a reason to have to report you to the credit bureaus.

In the meantime, set a holiday spending budget and stick to it. After all, your best present will be opening the door to your new home in the new year!