Most of the time, people clear up their debt via debt consolidation loans to afford their dream home. They often think that if they are in debt, they will not be able to purchase a house in the future at any cost.
Buying a home is both challenging and rewarding. It can be difficult when you have loads of debt on your name, but this does not mean you can’t achieve your goal. You can still purchase a house even though you have current debts to pay off.
Here are a few tips on how you can afford your dream home when you’re still in debt.
Pay Attention to your Debt-to-Income Ratio
Your debt-to-income ratio is extremely important. This is the overall monthly debt, which is divided by your monthly income. This will give you a percentage that can affect your overall credit score adversely. Lenders source this type of information so that they know that you are able to pay off your future debts in good order. You can calculate this figure on your own by using the above formula.
The debt-to-income ratio needs to be less than 43% in order for a lender to consider you as a good debtor for a mortgage. If you have debt and your ratio percentage is lower than this threshold, you can still be considered while buying a home as a viable debtor. If it is above this percentage threshold, consider paying off more of your debt before applying.
Save Up for a Down Payment
Many people wish to purchase a home, but they are often put off a lot sooner due to the high down-payments they can’t afford. Usually, people expect this amount to be over 20 percent. Even though people are expecting to pay this amount, this is not always the case. Some mortgage lenders are willing to work with you and your budget if you can afford a reasonable down payment. Most mortgage companies only expect a 5% down payment anyway, so you shouldn’t allow your hopes to fall.
However, it is always good to remember that paying more money will benefit your interest rate and result in you paying a lower amount for your dream home as a whole. A lower down payment option is possible, but it would be best to put down as much as possible to get the most bang for your buck. You can save up for this on the side or use another remedy to help your situation.
If you want to own a house with no down payment required, then you might want to check USDA loan program. Also, it guaranteed lower fees compared to other conventional loan companies. You can check usda property eligibility to see what areas you can choose and avail of the program.
Plan a Good Budget
Buying a new house is a life goal, but it can also add more hefty debt to your name. If this is going to happen, you need to plan your finances accordingly, which means setting a strict budget. Find ways to cut down your current costs and save money on other things so that you can create a steady, consistent financial plan you can follow in the future.
The more money you save up, the less debt you will have since you will have more money to pay it off sooner. Calculate all of your current costs and combine those with the future expenses a house might bring in. If it is something you can manage, you should go ahead with it. You can consider finding a quicker remedy like a debt consolidation loan, where you will only have two loans to pay off.
Getting a debt consolidation pre approval from different companies can also assist you with planning your budget for the future.
Don’t be Penny Wise and Pound Foolish
Nobody wants to play a blind when buying a house. The initial stage may seem exciting but later you are left with almost a life-long burden. Even if you can afford to buy a home with the debt that you owe, paying off the amount first by using a debt consolidation loan would be a better idea. Once the debt is paid off and your name is clear, then you can decide to buy your dream home, stress-free.
Purchasing a home is not only buying the actual shell, various other maintenance bills come with it as well. So, think it through entirely before making the decision. It might not be as good of an investment as you thought. You may end up spending more of your salary monthly than expected.
As you can see, planning to purchase a new home is a long process. Whenever you’re ready to take your first big step, you should consult with various sources, or speak to a mortgage consultant to advise you further on how to afford your dream home when you’re still in debt.
About The Author
Michelle Joe
Michelle Joe is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences, and express herself through her blogs. You can find her on twitter
