Buying a home is a big step, and for many, one question stands in the way: Should you pay off your debt before purchasing a house? The truth is, you don’t need to be completely debt-free to buy a home, but certain types of debt can impact your approval and interest rate.

So, how do you strike the right balance? Let’s break it all down!

Understanding Debt & Mortgage Approval

When lenders review your mortgage application, they consider several factors, including:
✅ Your Income – Can you afford the monthly payments?
✅ Your Credit Score – Are you a responsible borrower?
✅ Your Debt-to-Income Ratio (DTI) – How much of your income is already tied to debt?

What Types of Debt Matter Most?

Lenders primarily look at debts that appear on your credit report, such as:
🔹 Credit card balances
🔹 Student loans
🔹 Car payments
🔹 Personal loans
🔹 Other mortgages

But some debts—like tax liens, judgments, or IRS debt—could completely block your approval unless they’re resolved.

Will Debt Affect Your Interest Rate?

Yes! A high debt-to-income ratio can lead to higher interest rates because lenders see you as a higher risk. If your DTI is too high, you may either be denied a loan or forced to pay more in interest.

Should You Pay Off Debt Before Buying?

It depends. Some debts—like credit cards with high balances—might be worth paying down. However, paying off certain debts at closing is an option many buyers don’t consider. Always consult a mortgage professional before making big financial moves!

Balancing Debt Payments & Saving for a Home

Some buyers make the mistake of stopping debt payments to save for a down payment. This can actually hurt your chances of getting approved! Instead:
💡 Keep making your payments on time.
💡 Work with a mortgage professional to determine what should be paid off.
💡 Remember—you don’t always need 20% down!

When Should You Talk to a Mortgage Professional?

ASAP! Even if you’re not planning to buy for a year, a mortgage professional can guide you on:
✅ What debts to pay off (and which ones can wait).
✅ How much home you can afford.
✅ How to boost your credit score for the best loan terms.

Many people wait until they’ve found their dream home to talk to a lender—only to discover they don’t qualify! By planning ahead, you can avoid surprises and buy on your terms.

Final Thoughts

Debt doesn’t have to stop you from buying a home, but understanding how it impacts your approval and interest rate is crucial. The key? Talk to a mortgage professional early and create a strategy that works for you!

📞 Need expert mortgage advice? Contact Morgan Financial today!

321-265-4000

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Reach out now to get started on securing the home of your dreams or refinancing to save more on your current mortgage.