| Published: February 10, 2021

Buying a Home with Debt

When you’re considering buying a home, looking at your current debt balance can be intimidating. But with the right strategies, you can pay down debt and be poised to purchase a new home in six to 12 months. While we can help you finance a home, land, or an entire farm, you can start to prepare for your next loan with these tips.

Prep Your Existing Home for Sale

If you own a home and need to sell before financing a new property, you’ll have a few items on your to-do list in addition to managing debt. The good news is that the higher your list price, the more funds you’ll have to work with for financing your next home. Even a thorough clean-up can already help get your house in shape for a lucrative sale, so be sure to prioritize the improvements your home needs before the listing date arrives.

Start by making a list of household projects that need attention. Spending a bit of cash up-front can help you clean up your house so that it appraises – and sells – for a higher amount. When you do, consider outsourcing more challenging tasks to professionals, both for your safety and peace of mind. A tree removal service, for example, is better equipped to handle dangerous trees hanging over your property line. Tree removal can cost anywhere from $400 to $2,000, though, so it’s crucial that you check the service provider’s credentials, insurance, certifications, references, and ask for a written estimate.

Start Building Your Credit One Payment at a Time

One crucial factor in your home loan equation is your credit score. A better credit score means more loan options, fewer fees, and even a lower down payment when buying a home. But how can you build your credit while dealing with debt?

Keeping current on your existing debt payments is the best way to increase your credit score. As you pay down balances – even in small increments – you decrease your debt to income ratio and create a more favorable credit profile.

There are plenty of credit tracking apps where you can keep an eye on your score, too. Keep in mind, however, that these apps aren’t always accurate, so the most accurate report comes from one of three credit reporting agencies. The good news is that the federal credit bureaus offer free reports once per year, notes

Start Exploring Home Loan Options

Just because you have debt doesn’t mean you can’t qualify for a mortgage. With our home loan and mortgage services, for instance, you can enjoy competitive and long-term fixed rates. There are also higher debt-to-income limits and lower down payment requirements.

However, if you are still carrying a high level of debt from student loans or other bills, saving cash may be a better strategy than chipping away at your current balance. Having cash in hand means you’re prepared to pay escrow fees, closing costs, and any other incidentals when buying your new home. In many cases, having cash in hand can be more valuable than having a debt-free credit pull.

Strategize, Then Stick with Your Plan

Many financial gurus recommend the “snowball” payment plan for debt. This approach involves paying your smallest balance first, then rolling that fee amount into the payment for the next bigger item, and so on. Experian recommends choosing a strategy and sticking with it, prioritizing a healthy debt-to-income ratio. The right approach for you depends on how your debt stacks up, plus where your ratio currently lies.

One solid tip no matter the payoff approach you take? Avoid opening new accounts or adding charges to credit cards. Stopping the debt cycle takes more than paying off outstanding bills: it involves avoiding running up charges when you’re finally in the clear.

By focusing on paying down debt in small increments and keeping tabs on your credit, you will find yourself a step closer to realizing your dream of buying a home. Have questions about the loan process or your ability to take out a loan? Connect with one of our experts find out whether homeownership is a more achievable goal than you anticipated.

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