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7 Lebanon Street, Suite 105, Hanover, NH 03755
7 Lebanon Street, Suite 105, Hanover, NH 03755

Title-Mortgage-Blog-July1If you are considering investing in real estate, it’s important to make sure you are financially ready to make such a big purchase. Taking the time to address your financial portfolio before you apply for a mortgage is smart and paying down debt will increase the loan amount you can qualify for and it will have a positive effect on your credit score.

However if you are ready to apply for a mortgage, you will want to speak with your Upper Valley Mortgage Lender before you make any financial decisions. Making debt reduction decisions before speaking with your lender may cost you the home of your dreams. Avoid these costly mistakes and get educated before paying down debt.

1. Closing Credit Accounts – If you recently paid off that store credit card you opened in college and you want to celebrate by calling and canceling the account, think again. Your borrowing potential is based on your debt to income ratio. Paying down debt and then closing the card with the $10,000 credit limit will erase that credit line from your portfolio. You don’t have to use the card anymore but it is wise to keep the line open so that the credit line shows up in your financial portfolio.

2. Pay Your Remaining Balance in Full – Who doesn’t love making that final payment on a credit card? It may seem like the best choice to dip into your savings to pay off a credit card balance but if you are in the process of applying for a mortgage this may be a mistake. In some situations having that chunk of money in your savings account is far more beneficial then paying off that low balance on your credit card. This is a situation where you need to ask the advice of your mortgage lender before you do anything.

3. Take Out a Small Loan – If you are ready to apply for a mortgage you cannot apply for any other loans. This means no new car or personal loan until after you’ve secured your mortgage and closed on the home. Taking on new debt during the home buying process can have a negative effect on your financial portfolio that could cost you the home you want.

4. Co-signing on a Loan – It is generous to consider co-signing for a friend who needs some help to get a car or personal loan. However if you’re ready to buy a home, co-signing on another loan could stand between you and your home loan.  When you cosign for someone you are responsible for the debt in the event the person defaults. That means a lender will see this as debt in your name and count it against your borrowing potential.

5. Try to Pay All Debts Down At Once – There are many philosophies on the best way to pay down debt. Rather than paying $20 extra on every bill, it is more successful to pay the minimum on all debts and choose on bill to make larger monthly payments towards. How you decide which debt to pay down is up to you. Some choose the debt with the highest interest rate while others start with the lowest balance. Whatever you choose, be consistent and make sure you’re still setting money aside in your savings for an emergency fund.

Paying off any existing debt is the first step towards getting you in your new home. However it’s important to understand that debt is only one part of the picture when it comes to qualifying for a loan. The sooner you speak with a mortgage lender the better understanding you will have of your borrowing potential.

Check out our Loan Calculators to get an idea of how much you can afford and what your monthly payments would be. If you’re ready to start the loan application process you can complete the application online or call our office at 603-643-1400 to set up an appointment with one of our loan officers.



Post Author: Titlemortgage