Reduce your debt before buying a home
Whether you’re moving home, there’s a good chance you’ll need outside financing to obtain it. However, as many homebuyers have learned, now is the time to try and reduce your debt before purchasing your home.
Here are some ways you can reduce your debt. As well as, increase your cash flow and achieve a low debt-to-income ratio before buying a home.
Fix your credit report
While you might not put much thought into old information on your credit report, lenders do.
Appearances matter on your credit report and multiple addresses can give off the impression that you’re financially unstable. Even if a potential borrower doesn’t find any errors or discrepancies on their credit report. It’s good for them to get in the habit of regularly checking its contents.
Improve cash flow
Before approving you for a mortgage, lenders want to feel assured that your current debts won’t impede you. Especially from making monthly payments on your home. One thing that makes lenders feel uneasy about your ability to make those payments is credit card debt.
To get started on paying down credit cards, consumers should set aside money each month to whittle away at their cards that have higher interest rates and larger balances. By attacking those balances, consumers will vastly improve their cash flow, which is central to a lender’s decision.
Negotiate unresolved debt
Though you may have outstanding debts that have gone to collection, you can still qualify for a mortgage in the future, especially if you take prudent steps to bandage debts and erase balances from your credit report. As the last thing you want is to have a bad credit score.
To start the debt triage process, consumers should reach out to their creditors or collectors and offer to pay half of their sum — or, in some cases, less. The end goal should be to remove all unpaid bills from a credit report and receive documentation that the cases have been closed. With a tidier credit report, creditors will be less skittish about lending to you.
Consolidate your debt
If potential home buyers have multiple student loans or credit cards with significant debt on them, they should consider consolidating their debts. In the latter scenario, consumers can search for a zero or low-interest credit card that allows them to transfer their current obligations onto one card and closeout multiple open balances.
The importance of reducing your debt through traditional means, such as consolidation. Getting a reasonable loan could help you consolidate all your debt and have them all in one place for you to look at.