by Maurie Backman | Jan. 27, 2021
Owe money? Here's how to accumulate a down payment for a home while staying on top of your debt.
With mortgages rates sitting near historic lows, now's a great time to look into buying a place of your own. But what if you're already carrying other debt, like a credit card balance or personal loan? If you're trying to stay on top of that debt, or, better yet, pay it off ahead of schedule, socking away funds for a down payment on a home could be difficult. Here are some tips for how to pull it off.
Let's be clear -- you should not even contemplate falling behind on your existing debt payments to come up with the money to buy a home. In fact, if you do fall behind, you'll be reported as delinquent to the credit bureaus, which will likely hurt your chances of getting a mortgage. Rather, what you should do is establish some priorities. If your goal is to make more than your minimum payments to knock out your debt quickly, you may want to allocate, say, 70% of your unspent money each month for that purpose and only set aside 30% for a future down payment.
The less your debt costs you to pay off, the easier it will be to chip away at it while simultaneously saving for a home. If you owe money on credit cards, see if you qualify for a balance transfer to move your existing balances onto a single card with a lower interest rate. Some balance transfer cards even start you off with a 0% introductory APR. You can also look at taking out a personal loan to pay off your credit cards, and then paying off that loan at what should be a lower interest rate.
Paying off debt is a major undertaking. So is saving for a home. If you're committed to doing both at the same time, you may need to get into the habit of spending less. Comb through your budget and identify expenses you're willing to cut back on until you've met your goals. That could mean scrapping travel plans, dining out less frequently, and only buying clothing you absolutely need for work.
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Boosting your income is a great way to eke out extra savings so you can not only tackle existing debt, but also put away money to buy a home. That's why it pays to find a side job. It can be a gig you do outside the home or one that's totally remote -- like writing, editing, web design, or telemarketing. Of course, don't forget that the wages you earn from your side job will be taxable. But even so, if you manage to bring home, say, $300 a month after the IRS gets its share, you'll still be in a stronger position than you were before you had that job.
The less debt you have going into homeownership, the better. Not only will having less debt make you a more appealing mortgage candidate, but it will also make it easier for you to keep up with your monthly housing payments. If you're eager to buy a home but also want to pay down debt, the good news is that you don't have to choose. By following these steps, you should be on your way to accomplishing both goals -- and that will really give you something to be proud of.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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