Five Reasons to Reduce Your Debt Today
Lower Your Debt to Improve Your Mortgage Options
Oct 7, 2016
Loans and credit card debt can be a necessity. They can help pay for college or buy a car, but they can also hurt you when it comes time to purchase a new home or refinance your current mortgage. The mortgage specialists of Bank of Internet USA present five ways that getting your debt under control can help you get the best mortgage possible.
Increase Your Credit Rating
When shopping for a mortgage, you will want your credit score to be as high as possible. The ideal score that lenders are looking for is 740 or higher
to offer you with the best interest rate possible. Make yourself more appealing to lenders by paying down your debts to raise your credit score.
If you can’t reach a 740 credit score, you may still qualify for a home loan with a credit score of 640 or more. You may also be eligible for a government loan with a lower score.
Improve Mortgage Terms
Low interest mortgages are easier to obtain when your debt-to-income ratio is lower. By reducing your debt, lenders will see that you have more money to pay your mortgage with, which makes you less of a loan risk.
Take the time to download your free credit report each year. Your credit report will give you an overview of any debts that you owe and give you an opportunity to find discrepancies on your report. If you find an error, call your creditor to have it removed from your report.
Enhanced Cash Flow
Reducing your debt before you buy a new home can provide you with more financial flexibility. Paying more than your minimum payment on your credit cards can help you set aside more for your down payment.
Even if you only have $1,000 in credit card debt, paying the minimum while paying a 15% interest rate can result in hundreds of additional dollars in interest payments before the debt is paid off. Use those extra funds to help cover your utility bills and buy furnishings for your new home.
Prepare for Emergencies
Many people who buy a home forget to budget for home emergencies. Paying off debts today will improve your future cash flow to pay for that new water heater or new kitchen that your house may need in the future.
While it may seem counter-intuitive, paying more toward your debt today can increase your future savings. Debt that you incur today is taking money away from your future self. Paying off your debt will allow you to put the money you would have spent on a credit card payment into a savings account or pay off your mortgage faster.
If you’re ready to buy a new home, Bank of Internet USA offers a wide variety of mortgage options for you and your family. Call us today at 1.888.546.2634 to speak with a Mortgage Consultant about your lending opportunities.
"Five Reasons to Reduce Your Debt Today"
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