Posted: 4/13/2005 4:30:38 AM EDT
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Ok I am trying to save up a down payment for a home, and trying to get my credit as good as it can be. Right now I have $1,000 saved up in cash for a down payment, I have $3,000 in credit card debt. What is more important. Saving cash, or paying down credit card? Thanks! |
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Correct me if I'm wrong, but aren't you the guy with a few Rovers...like 3 or something? If that's the case, paying off your debt and adding significantly to your downpayment would be the best route. Might want to think about selling a car. $1000 is closer to a down payment on a car, not a home. |
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Depends on what the income is. Debt to Income ratio has to be well to do. You can have a ton of debt, but have good income and still get loan approval. Heck if there is room, use the home purchase to pay off the cards! Thats one thing to look at. Credit Scores, Debt to Income ratio, time on job..those are all factors. Look at using the home to pay off the cards. It will save you big time $$. There are gov't backed seller contribution programs as well for 2nd mortgages that are 'forgiven' at time of close as well. |
Wrong guy |
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VT, I think you will find the lender will look at the ratio of debt. So if $3K is not a significant number to your overall financial position, they will over look it. Also, the bigger the down payment, the better. If you have less than 20% down you'll have to pay PMI and (probably) a higher interest rate. You can pull your own credit report and determine your score. G23c |
| Ok guys that is what I thought. As long as I keep paying my credit card off and the balance goes down (in small increments) and if I take most of my cash and save it for a down payment I am on the right track. I was going to chuck the 1k onto the credit card but if money for a down payment is more important than I am holding on to it. |
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What is the interest on your credit card debt? How quickly are you planning to repay it? Minimum payments won't get it done very quickly. What is your time frame for purchasing the house? How much are you saving toward that each month? If it were me, I would pay off the credit card debt because normally the interest on credit card debt is fairly high. Once that debt is gone I would apply all of the debt payment amount towards saving for the house down payment. I don't think that credit card debt is as "good" a type of debt as a car loan or a mortgage for credit score purposes. |
Whew. For a minute there I was worried that this would be a link for that bitch Suze Orman. |
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Your debt ratio is important for mortgage apporval. i.e. how much you make a month compared to what you have to pay towards debt a month. Somewehre around 30% is the line I do belive, but of course the better this and your credit score is, the better chance you have of getting a mortgage from an A or B lender with a good rate. Down money is secondary, especially if the debt ratio and the credit score are good. The appraised value compared to the selling price of the house helps lower required down money as well. If you're getting the house for less than appraisal, the bank sees this as instant equity when you close; they MAY be more forgiving with down money. Also be aware that if you show up with less than 20% to put down, you may be required to pay PMI, this is insurance to cover your mortgage. It adds a nice chunk to your monthly payment so be aware of this. Remeber also, that you will need to have closiong costs on top of your down payment. This is the money to pay the fees, tax escow, etc. when you close on the house. While some lenders will roll this up into the mortgage, these are typically C lenders and this is basically adding debt to your house before you buy it. Some even make you get a line of credit against the house to get this approved. |
Hell, I don't think so. I know people with 20k or credit card debt. Most of the dept is unexpected vehicle repairs, part of dept run up by ex-wife 4 years ago and what I needed to live off of when I was broke. It was $6k |
My interest is 11.2% and I want a house within a year. I am trying to save $160 a month. |
I have looked at this issue and the only real answer I can come up with is another question (sorry!). How much are you able to save over time, or better worded, how long did it take you to save the $1,000? Another factor in the equation is the local housing market in your target area. If housing prices increase 4% per year (national appreciation average), and it takes you 6 months to save $1,000, then you are chasing a quickly moving target. Example... $200,000 sales price and 5% required down payment (standard for Conventional loans), year one is a $10,000 down pmt. Year two, the price has increased to $208,000 and the new down pmt required is $10,400. I would advise you to pay down the CC debt (to improve your Debt to Income ratio) and get a 2nd mtg to split your loans into a Conventional 80% first (saves $145.67 in monthly Mortgage Insurance) and a 20% second. In this way, you need no down pmt and the pmts are (without insurance or taxes figured in) Standard Loan = $1,224.47 vs. 80/20 Loan = $908.46 + $310.12 = $1,218.58. If your DTI (see above) is in line (consumer debts can be up to 29% and total debts including new house pmt can be up to 41% of your GROSS monthly income), then keep your money for fixes, upgrades, remodels, lawn care equipment, etc. |
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You have $1000 saved and are saving 160/month. That will be $2920 in a year. Is this money set aside specifically for the down-payment only, or is this all the money you have to buy the house? Don't forget closing costs. I had to pay about $2000 just in closing costs. Sometimes you can get the seller to pay all or part of the closing costs as part of the deal, but don't count on that. |
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How fast could you pay off the card if you really buckled down and did it? A few months vs a few years? What are housing prices and appreciation like in your area? Is your income/debt ratio acceptable? How does your rent payment compare to a house payment+insurance+maintenance expenses on a house? Could you get into a house within a year with 20% down? If the income/debt ratio is a problem I would concentrate on paying the card down first. If you could eliminate the card debt in 6 months or less, I would do that first then add the extra money to down payment savings. If housing prices are appreciating exponentially in your area, you may be better off getting the house first. An 80/20 type loan may be an option to reduce down payment. Lots of variables to consider. |
| You should be able to save this at least this amount: Desired house pmt - current rent pmt = what you should at least save. So, that $160 + the amount of your rent should be the most you are willing to make in house payments. $160 isn't a whole lot in the grand scheme of things, so I wouldn't look to pay more for a house per month than your current rent. |
Oh, I forgot another tidbit. I will be buying this house with my girlfriend, so you can double everything. |
11.2% isn't incredibly bad for a CC, but it is still a lot more than most investments will earn, especially your savings account. If it were me I would: 1. Look for a balance transfer offering a 0% rate for some period of time 2. Transfer my balance and put everything I had into paying off the CC debt within the 0% rate window. Current CC payment + $160/month house savings + $1000 in accumulated savings all towards paying off the CC. If that won't pay off the loan within the 0% interest time frame cut expenses so that you can do it that way 3. Take your $160/month and return to saving. Add in the interest you were paying on your $3K CC debt (approx $30/month) and add that to your down payment savings. Do not carry any more balances on your CC. If you can pare expenses to bolster this amount then do so. 4. Be extremely careful buying a house with some who is not your spouse. Lots of potential complications there. |
+1000. Get married before buying a house together, and don't splurge on a big, lavish wedding. Too many couples end up in divorce court even before the wedding bills are completely paid off. Other considerations if you want to buy a house within a year or so: Have you pulled a credit report? If so, is there any adverse or incorrect information on it? You'll want to get this fixed before applying for a loan. What is your FICO score? The lower it is, the higher your interest rate will be. Cleaning up your credit report will increase your score. Other than the CC, do you have any other debt such as student loans, car loans, etc? |
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ok you have 2 issues, and no i am not speculating i know this industry. that said this is not financial advice and you are not a client of mine. if you lower your debt your credit score will improve, that could mean the savings of tons of money over the long run. a good downpayment though will also lower your risk to the bank and get you a better rate. but you said that you only had 1,000? that is not a downpayment, so if your going to buy soon youd be better off having a good credit score... your credit score can change everry day. downpayment money can be borrowed from family, but credit score is what it is. If i were you id borrow some $$$ from family for down pay and pay off the CC now to get a better score thus requiring a smaller downpayment anyway. ETA did i see someone say your buying this house with a girl? oh shit, its a trap. seriously though if your not married have an exit contract fair and ready |
| One quick point, banks and mortgage companies are not the only source of financing, you may be able to negotiate a Contract for Deed ("land contract") or a lease option, providing the terms are suitable to you. Caveat emptor as always, with both private sellers and mortgage brokers. |