Prudent Buyers Pay Off Personal Debt Before Taking On a Mortgage Loan
A mortgage is a serious financial commitment regardless of the health of your finances, and failing to pay it can have drastic consequences, including foreclosure and bankruptcy. That’s why prudent buyers take the time to pay off personal debt before applying for a mortgage loan. Not only will this smart move provide more peace of mind when you find the home of your dreams, it offers several other benefits, as well.
Firstly, paying off debts that have been dragging you down will create a rosier picture on your credit report by positively impacting your all-important debt-to-income ratio, which lenders use to determine whether you qualify for a home loan. The better the ratio, the better the interest rates offered on a prospective mortgage loan.
Second, paying off high-interest debt like credit cards will save you thousands of dollars in interest over the long term, freeing up more cash for home improvements or unforeseen expenses. Plus, getting out of that credit card payment cycle feels like a breath of financial fresh air!
Lastly, most consumers who find themselves concentrating on paying down debt also find it easier to then begin saving for a down payment. The size of the down payment on a home determines whether a buyer is subject to paying Private Mortgage Insurance (PMI), so working toward that 20 percent goal is worthwhile over the long-term.
Getting your financial house in order before signing a purchase agreement on a home offers valuable financial benefits. If you’re unsure where to begin, contact a local financial advisor for a free consultation in order to learn debt pay-off strategies that best suit your individual needs.
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