5 Debt Management Goals for Prospective Homeowners

You may be under the impression that you must be completely debt-free before purchasing a home in the next six to 12 months, but this is simply not true. It’s possible to save for a down payment while making realistic payments on outstanding debts. To better manage your debt while considering buying a house in the near future, consider the following five points, brought to you courtesy of Viwida USA.

Assess Your Current Debt

According to Wisebread, if you don’t already have a system in place to track your debt, now is the time to make a record of outstanding payments on credit cards, student loans, or personal loans. Knowing how much you have to pay off and when payments are due are essential first steps for managing your debt prior to buying a home.

Research the Market to Determine Your Down Payment

Even if you’re not a realtor, you should gain a basic understanding of the housing market to determine how much you should save for your down payment. Saving 20 percent is ideal for many borrowers, but mortgage lenders may offer you a higher or lower rate depending on your credit score, lending history, and net income. Keep track of housing prices and make a list of potential lenders to approach for a pre-approval. Depending on your circumstances, you may be eligible for down payment assistance, which can make it easier to purchase a home for very little or no money down. Each program comes with its own set of rules and requirements, so be sure to carefully research your options if you decide to look for assistance.

Build Your Credit Score

A good credit score gets you far when it comes to securing a loan, even if you have outstanding debt. The opposite is also true: Subpar credit scores can hurt your chances of obtaining any type of mortgage. If you aren’t sure what your credit score is, use one of several free sources to keep track of it while you save for your down payment. If it is too low, ensure that you have closed old accounts and that you are not utilizing more than 30 percent of your credit.

Understand Interest Rates

If you’re planning on buying a home within the next year, Mortgage News Daily suggests that it’s a good idea to read up on mortgage interest rates. Your monthly payment may be much higher or lower depending on which way the rates swing, and different lenders may offer very different rates. Take this concept into account when planning a budget that includes your house payment, payments on outstanding debts and loans, and other monthly expenses.

Consider Credit Counseling

Credit counselors and other financial planners are great resources for those who want to manage a large amount of debt but aren’t sure how to begin. If you’re considering buying a home within the next few months to a year, it may be a good idea to get in touch with one of these professionals to develop a clear game plan for handling these payments while negotiating down payments and closing costs.

Though the average household income is rising, according to Bankrate, the average American has a personal debt of over $90,000. Facing your debt and making room for monthly payments in your budget will save you much frustration and anxiety. Build a healthy credit score, do your research on the housing market, and get in touch with a credit counselor or financial planner for more information if you have questions.

By our partner – Emily Graham