How to Buy a Home in A Year or Less When You’re in Debt

By: Patrick Young

Several factors influence a lender’s decision on whether or not to qualify you for a mortgage. Above all, they will want to ensure that you can afford the house. If you carry a substantial amount of debt, lenders know that paying that debt month after month will leave you with less money to make your monthly mortgage payment. Simply put, the higher your debt, the higher the risk for lenders.

That said, it’s possible to buy a house when you’re in debt. Just expect to work a little harder to obtain a mortgage. From assessing your financial standing to hiring a real estate professional like Mike J. Gold, here are some ways that you can manage your debt and buy a home in one year or less:

See where you are financially.

First of all, it’s important to know where you stand in terms of your finances as it will help determine what you need to do to buy a house. Start by checking your credit score — you qualify for a free annual credit report from each of the three reporting bureaus (e.g., Experian, TransUnion, and Equifax). Then, find out what your debt-to-income ratio (DTI) is. You can get a rough calculation of your DTI by comparing the total amount of your debts to the total amount of your income.

Look to a financial consultant.

One way to help get your finances under control is to hire a financial consultant. While you can learn to develop a budget, save money, and eliminate debt by yourself, working with a professional will save you a lot of time and stress. Search for financial consulting services on job platforms to compare rates, delivery times, and client reviews.

Get the most out of your home sale.

If you currently own a home and are looking to sell, then it’s essential that you make the most of the opportunity. You can save a lot of money by performing your own repairs, rather than hiring a contractor for every single task. Consider any projects for which you have the necessary skills and knowledge, and make sure you can perform them safely.

Also, find a reliable real estate agent to help you navigate the home selling (and buying) process. The right expert can make your whole experience much less stressful and help you sell your home quickly at a price you’re happy with.

Decrease your debt.

No matter how you look at it, you want your debt to be as low as possible when buying a home. Even if you can score a home loan, be sure to minimize your debt before signing the dotted line. Along with creating a budget that allows you to cut expenses and pay down debt, look into consolidation loans that can help you pay off many types of best at once.

Increase your income.

Along with decreasing your debt, figure out how you can boost your income. This could mean seeking a promotion at your current job or looking for a better-paying job elsewhere. It could mean taking on a second job. If you’re a freelancer, you might consider raising your rates and/or going all-in on building your client base.

Shop around for loans.

Finally, there are many types of home loans out there. While a typical home loan requires at least a 20% down payment, you don’t always have to pay that much. Government-backed loan programs and some conventional mortgage lenders offer mortgages for low down payments. Just make sure the loan you agree to has monthly payments you can afford.

Having said that, you can lower your monthly payments and obtain a more favorable interest rate by spending points. Paying points involves paying a fee to the lender at the time of closing. This is ideal if you expect to be living in the chosen home for a long period of time, so if you don’t have plans to stick around for years to come, then the points system might not be best for you financially. Play around with an online points calculator to see if this is a feasible option you can pursue.

You can buy a home even if you’re in debt. Remember to assess your financial standing, hire a financial consultant, and take steps to maximize the benefits of your home sale. Look for ways to decrease your debt and increase your income, and be picky when selecting a home loan. While more goes into buying a home, following these tips will get you off to a great start.

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