Five Ways to Fix Your Debt and Get into Your First Home
As much as I would like you to walk into my office and say, “Nola, let’s look for that house” I know that if you are reading this post, you may still be exploring ways to buy your first home. In most cases, it is the debt to income ratio that is keeping you from paying that visit and buying a home in Central Oregon (or Anywhere, USA for that matter).
If your first home is just out of reach because of your debt, I have some basic ideas to help get you into my office so we can begin the search.
Understand Your Debt-to-Income Ratio
Every lender needs to see more than just a credit score. They also need to see that you can handle that debt based on your income and will be able to absorb the added debt of a mortgage lasting fifteen to thirty years. They don’t have a crystal ball but they can make assumptions based on what they know. One number – 38% – stands out as the threshold for lenders. As an example: a household with a $10,000 a month in income cannot have more than $3,800 in debt payment obligations. This includes everything: your mortgage, insurance and taxes, cars, credit cards, and student loans.
Fix Your DTI
Assuming you have been making all your payments on time, which bills and how much you are paying can be the next step. If you are like most people under the age of thirty-five, student debt makes up the lion’s share of those debt obligations. There are five basic ways to wrestle that debt into a more manageable one, or eliminate it altogether.
One: The Sliding Scale Method suggests you take all of your monthly debt obligations from lowest to highest. Pay twice or three times the amount on the lowest obligation and when that is paid off, move that money into the next debt in line. Yes, you will have to make sacrifices.
Two: The Snowball Method focuses on the largest debt and goes all in. Doubling or triplingdown on the payment can reduce the total debt in three to five years in some cases from the ten year loan. Yes, you will make some major sacrifices.
Three: The HELOC Method relies on enough equity in the home you own, which doesn’t apply to the topic at hand but is worth mentioning nonetheless. A Home Equity Line on Credit is often costs much less than a student loan debt. No sacrifices, but no debt relief either.
Four: Applying for an extension loan doesn’t pay it off but does lower your monthly payments considerably. No sacrifices but also no real solution the debt balance.
Five: Of course there is the move-back- home option, which as a parent is not the most desirable option but can do wonders at focusing any and all income to debt reduction and maybe elimination. No sacrifices with the exception of living with your parents again but it will do wonders for your bottom line.
I do look forward to meeting you at some point and when you do stop by, we’ll find that home on your wish list. In the meantime, dream but don’t fret over housing prices or interest rates; there will always be the perfect place for you and I look forward to showing it to you.
How can we assist you today?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
Karen Marcy, Broker/Realtor
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
Mobile: 541-420- 3725 | Mobile: 541-420- 4018 | Mobile: 503-327- 9611 | Fax: 541-593- 5123
Licensed in Oregon