Home Buying With Debt: Managing Debt First

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Home purchase is often the biggest purchase we make. If you are beginning to look for a home, being financially prepared is important, especially in our current economic environment. Having your finances in order that can put you in the best possible position to move forward with your home purchase. There are multiple parts of the homeownership process. First, gaining knowledge of the entire process, second, improving your credit score, third reducing your debts, and finally building savings. All of them are equally important. They can help you, as the homebuyer, make the best decisions. In this blog, I’m focusing on home buying with debt, specifically how to manage it to prep for the purchase.

Debt Repayment and Homeownership

In today’s housing market, putting your best financial foot forward, is a big deal. Managing and paying off debt can help improve your home purchase prospects:

  1. By paying off your debts, it lowers your Debt-to-Income ratio (or DTI), which is a key factor in mortgage approval.
  2. Allows you to save more for a down payment, closing costs and possibly moving expenses.
  3. It can help build your credit score, another major factor in a home purchase.
  4. Paying off your debts first, allows you to afford your mortgage payment long-term.

Preparing Your Debts

Begin to pay off and pay down as many of your debts as you can.

  1. Write down all your debt payments (e.g. Credit cards, car payment, student loans, personal loans). Make sure to include balance minimum payment owed, interest rate.
  2. Determine how much to pay towards your debts each month to pay them off quicker.
  3. Pay your debts on time.
    • Paying them on time can help improve your credit score, which is another important factor during the home loan process.
  4. What extra can you pay monthly? If your budget is too close to pay extra:
    • Work to reduce unnecessary expenses–e.g. subscriptions and meals out are a good place to review possible reductions.
  5. If paying extra is still not an option after reductions, focus on how to increase your income. Ideas include;
    • Working overtime.
    • Selling items no longer used.
    • Maybe even working a gig job or another side hustle.

Need Help with Debt Repayment

A Debt Management Program with a non-profit such as Apprisen offers many benefits:

  1. Lower interest rates.
  2. Money saved over time, since less interest is paid to your creditors. The money saved can go towards homeownership.
  3. Balances are pay off faster as more goes towards the debt principal.

In conclusion, home buying with debt is a process. There are many paths you can take to reach your goal of homeownership. Each of them requires preparation including reducing debts. Thus, when you are ready, you can put your best foot forward. For more resources on reducing debts, check out our debt management program. You can also follow us on TikTok for bite-sized debt management tips.

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