Relocating... Down payment or pay off debt?!?
We are considering relocating and i'm unsure what my best bet is. We will make approx. $15,000 from home sale. We have about $ 20,000 outstanding debt. Is it better from a loan standpoint to take the money and pay down the debt or put as down payment on new house? Our credit scores are average to good but i'm scared our debt may be a negative factor towards us acquiring a new mortgage with a fair interest rate. I've never sold a house before and have only owned this 1 so i'm not sure how to plan this!
Public Comments
- Usually you need a down payment when you are not a first time home buyer. Also your large debt will lower the amount you will qualify for.
- Pay off as much of your outstanding debt as you are able. You will get a better rate on your new mortgage. Don't forget to allow for all your expenses for finalizing everything at your old location, for the move itself, for a down payment on your new house, and for setting up a new home. Good luck with your move.
- Debt is debt, whether it is on a home or credit cards...only the interest rate is different. You may have to have a downpayment to buy a house, so find out before you pay off the other debt. As long as you are adressing your other debt, your "score" won't be affected Total debt of any form will be included in calculation of how much debt you can afford This means Total Mortgage + other debt, so paying off other debt won't help
- It depends. What sort of price range are you looking at? If you're moving somehwere cheap, with houses in the $90,000 range, $15K would give you almost 20% down, which would make your loan a shoo-in. If you're buying a $400K house, 15K down is almost nothing (3%). Also if your income is not a lot compared to debt, the bank will limit how much they approve you for becuase they only allow a certain percentange of your income for ALL debts. (usually no more than 45% of your monthly gross can go to satisfy debts.) Go to the bank now and get preapproved based on a zero down loan. See how much you qualify for. If its not enough, use the money to pay down debts. If you have a car note with $5K on it and it costs $250 a month, paying that off could up your preapproval as much as $50,0000. Or the bank might say they need you to use the money down. It's the EDUCATED way to make your choice. :-)
- My suggestion to you is take $10,000 and apply to your outstanding debt. Take $5,000 and apply that to a down payment on a new house and when you apply for the loan for the house ask to get an extra $5,000 to pay off the rest of the debt that you owe. This way you can be debt fee and have a house. The interest rate is much cheaper then your cc are. And try and stay away from credit cards, everyone needs them but don't abuse them try to pay them off every month.
- I better get this right. I am a Realtor® There are a number of unknown variables here. 1. Is the $20,000 debt long term? (more than 6 months) 2. Do you have additional monies available for a down payment? 3. Credit scores (FICO's) should be at least 630 or better depending on your payment history, and income. 4. Can you manage your outstanding debt plus the new mortgage? Option 1 Based on your question alone, I would suggest consulting a Bank, or Mortgage Broker for pre-qualification. If qualified for "X" amount, WITH the debt, then I'd say use the $15,000 as a down payment. And pay down the highest interest debts first. Option 2 If the debt is high interest, then pay down the highest debt 1st. Get the total debt cut in half. Again, consult a lender or Mortgage Broker. Option 3 See if you can qualify for a loan which covers your existing debt plus mortgage. Debt is not always a "scary" factor when applying for a home loan. You need to consult a Lender directly, or a Mortgage Broker. Also, if applicable, consider FHA, VA, or a 5/1 loan. A 5/1 is a 5 year fixed payment adjusting beginning in the 6th year. The beauty of this type loan is prior to the adjustment period, you can refinance again. Usually carries a lower rate than a 30 year Conventional. Best Wishes..............
