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-   -   How to best position ourselves for a mortgage... (http://www.mothering.com/forum/312-frugality-finances/1425874-how-best-position-ourselves-mortgage.html)

cristina47454 06-23-2014 06:06 PM

How to best position ourselves for a mortgage...
 
DH and I have been renting for so long at this point (bcs of multiple moves for jobs) that I think we might qualify as first time home buyers again. Well, we are finally ready to buy again. I say ready, but that's more of an emotional "ready" than a financial one.

DH just got a significant pay raise. Yay! We are trying to figure out how best to use the money going forward. Yes, we are current on all our bills, and we know about debt snowballing and I am familiar with Dave Ramsey's plan.

DH had been working in sales and the commissions have been slow, so the last year has been about paying minimums. Now we'll be able to put $3000/mo someplace!!

We've been pre qualified for a home loan, but that was before the huge raise, so we want to position ourselves better.

Do we:
Pay down our consumer debt ALL the way and then start saving for the down payment? (It would take about a year…)

Hold onto the consumer debt and save for the downpayment?

Split the monies?

We live in a high COL, so the ability to save 20% is not all that realistic…unless we want to wait 5 yrs. And we are already approaching 50...

ANy suggestions on how to get there faster?

Oh, I should mention that DH also has the potential of a 25k-50k bonus, but I am not even counting that. Obviously that would change everything, but I'm not holding my breath...

pumabearclan 06-24-2014 04:46 AM

Personally I would pay down your other debts first because they will be assessed when you apply for a mortgage and you may get a better offer if you have fewer debts. Shop around for a mortgage, tell the banks what other offers you have received and ask if they can do better. You will probably be limited to a 10-15 yr mortgage due to your age, so realize that your payments will be higher than what is often advertised.

I would also be very careful that you can truly afford the house you plan to buy. Houses seem to cost a lot more in reality than people expect: utility and tax hikes, unforeseen problems and repairs, and the natural desire to improve your home and landscaping. But if you owned a house in the past you already know that :)

crazyms 06-26-2014 07:14 AM

Hmm... tough question. I think it really depends on your personal expenses which would be better but I would try to pay off the debt first or at least the majority of it before trying to do anything else. Anything that cuts monthly bills to lessen how much you have to have to pay bills each month is a good thing and adding a mortgage is a huge deal. We need to get another home as well but I'm eliminating monthly expenses as much as I can while saving for the expenses we need for the property. We plan to build ourselves though no mortgage. My one experience with losing everything to job loss was enough to scare me for life. :(

EmsMom 06-27-2014 04:39 AM

It really probably depends on the type of debt that you already have and what the interest rates are. If you have a car financed at 0 or 1.9 percent, for example, why pay that off? On the other hand, if you are paying 10% or more on that loan, get rid of it. If your car payment is extremely large, you might want to pay it off no matter what the interest rate is. Credit card debt tends to be high interest, so get rid of it because it is costing you too much money every single day. Student loan debt at the federal interest rate you can probably not pay off because the interest is low and if you became unemployed, you could defer your payments or lower them if you had to. Private student loan debt, however, could have a much higher interest rate and you will benefit from paying it off. Start reading about debt to income ratios so you can understand how you will qualify for the best interest rates.

I have a fairly straight forward aversion to debt; however, to me it doesn't make any sense to pay off debts with interest rates below 5% when you can be maxing out an IRA and earning 10% or more. And with a Roth IRA, you can withdraw the money you put in without penalty.

However, the higher your credit score is, the better your interest rate will be and that could save you tons of money over the next 30 years. Without more information on your actual situation, hard to know what to recommend. What is your credit score now? How much debt, what kinds of debt, and what are you paying in interest? What is your debt to income ratio? Don't just go into the decision to pay debt or save based on a guess. Study, learn, and then react.


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