Financing in 14221>Question Details

Erinwallace, Home Buyer in Buffalo, NY

What's Best? Saving for a down payment or paying off debt?

Asked by Erinwallace, Buffalo, NY Sun Nov 6, 2011

We want to move in 18 months. What's Best? Paying off our auto loan & home equity loan within a year by putting all extra money towards it, then save for a down payment (est. about 9k would be saved) or putting all our extra money towards the down payment- which would be about 18-20k. Our current debt to income ratio is 22% & we would be looking at houses around 250k. Auto Loan/HE Loan would be payed off within 2-3 years with normal payments.

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J’s answer
There is no monetary benefit to you having auto or HELOC debt. First, the key is knowing what is considered good debt and bad debt which affects your credit score. You are paying auto interest monthly---do you get any return on that money? HELOC---are you receiving any return on that? The choice would be a matter of what are you getting back in return in your pocket to hold certain debt.

You may want to substaintially pay down or pay off the auto loan then work toward the same on the HELOC---whichever has the highest interest rate. Continue to sock away as much as possible toward your home purchase budget. A lot can happen in your life within 18 months. Being free of debt and those payments when times get tough should be a part of your overall plan as well. Good to luck to you!
0 votes Thank Flag Link Mon Nov 7, 2011
Regardless of your credit, it would be best to pay down your debt. I've been appraising quite a few homes when the owner has two house payments and most will tell you, it is not fun. That's all the anwser you'll need. To learn more, check out my website. Oh, yes, make sure you keep a larger amount of cash before you pay down you debt. You may need it for other important bills.
0 votes Thank Flag Link Mon Nov 7, 2011
Paying off an equity loan or car loan won't have any impact on your scores - some may argue it may actually hurt them because you will no longer have those on time payments reporting each month. It is not treated the same as paying off a credit card.
0 votes Thank Flag Link Sun Nov 6, 2011
To settle your debts willll be the best choice. First of all, your credit ratio will be going lower and your credit
score will go higher.Pay off your equity loan and save more money for your down payment in one year.
At the same time, you could rent your house get that income and pay your new mortage in a new house.
That's if you already paid off your house.

Car loan is not much as your mortgage. So to pay two mortgage at the same time will be a big
obligation to deal with. Im willing to help you for wahtever questions you still need to answer.

Thanks and best regards,

Celerina
celerina97@yahoo.com
0 votes Thank Flag Link Sun Nov 6, 2011
If the interest rates on those 2 loans are low then I'd probably recommend you hold on to your funds to use as down payment/closing costs - as once you pay those items off, to get the funds back would take you being able to save up from your own income so if it turns out that the funds are needed it'll take awhile for you to accumulate them again. However if it turns out that the debt to income ratio is too high because of the car or home equity loan, then at that point you'd be able to make a decision to either use them to pay off the car in order to qualify or look for a lower sales price, etc... but you'd still have options. Whereas if you pay off the car & home equity loan right away, you have no options.

So I'd recommend you speak with a loan officer to see if you can qualify both ways, because if you can, then it's your call what you'd like to do with the funds. If you can't qualify both ways, you'll be given guidance on what needs to happen in order for to you to qualify at least one of the ways.
0 votes Thank Flag Link Sun Nov 6, 2011
Erin,

I would not worry about paying off your home equity loan since that could be satisfied and paid-in-full by the sale of your home. If you plan on retaining your present home as a rental, the home equity payment would be offset by rental income. Having an auto loan does not reflect negatively on you as a borrower candidate as long as your total debt ratios do not exceed maximums.

Based upon today's interest rate environment and real estate markets, I would encourage you to give strong consideration now. Saving additional money for a down payment in 18 months would be beneficial in terms of monthly payment, but it would have very little, if any, bearing on interest rate especially in the case of FHA.

If you'd like to talk right now, call me at my office 716-685-9696.

Thanks,
Ron Fronckowiak
Licensed Mortgage Professional
R & R Funding, Inc.
Web Reference: http://www.RandRFunding.com
0 votes Thank Flag Link Sun Nov 6, 2011
In order to make an informed decision and determine what will work best for you, do consult with any licensed loan officer(s); he she can best advise as to what should be done, so that you can be prepared when the time to purchase arrives; be aware that a mortgage pre-approval letter is required in order to determine your price range and for any offers to be taken seriously. Also consult with your financial planner and or tax professional...
0 votes Thank Flag Link Sun Nov 6, 2011
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