Home Buying in 97814>Question Details

Kelly Spike, Home Buyer in Baker City, OR

I am expecting $9,000 back from taxes. Owe $8,500 in credit cards and 14,000 on my car. Which one should I pay down to get a home loan?

Asked by Kelly Spike, Baker City, OR Sun Jan 1, 2012

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I was going to say the same thing that Ann said. Pay off the credit cards. Banks like to see that you can handle having a credit card without maxing it out. It shows responsibility. Paying down your car won't help you because your debt payment will remain the same. You can clear your credit card so that won't count on your debt to income ratio as long as you pay if off every month.

Honestly though, not sure why your credit card got that high, but consider chatting with a financial planner or credit counselor to figure out what makes the most sense for you.
2 votes Thank Flag Link Sun Jan 1, 2012
I would pay down the credit card debt because it is extremely high..
1 vote Thank Flag Link Sat Mar 24, 2012
Kelly, Please do take the advice to talk with a mortgage professional before you make any moves with the funds you are receiving. It would be impossible to give you accurate advice without know the specifics of your situation and the terms of all of your indebtedness. For all we know you have zero interest credit cards and auto loan, which would make paying them off less of a priority. On the other hand, it may be just the opposite and the best financial advice would be to pay everything off and saving for the down payment. A car loan can be "taken out" of your debt to income ratios if you own less than ten months...if may make sense to pay down the car loan if that goal can be acheived. Best of luck to you!
1 vote Thank Flag Link Mon Jan 2, 2012
Talk to a lender to find out what your best strategy is.

If you didn't have a goal of getting a home loan, I'd suggest paying down the higher interest loan first. And that's most likely your credit cards.

One other tip: Talk to an accountant about increasing the number of your withholdings. Unless something exceptional happened to you last year, it's not a great idea to get so much back from taxes. The goal really is to get a minimal amount back; anything more is the equivalent of an interest-free loan to Uncle Sam. Some people use a tax refund as a form of forced savings. But there are other ways to do the same thing.

Again, talk to an accountant to see whether your withholdings should be adjusted. And talk to a loan officer regarding which debt to address first.

Hope that helps.
1 vote Thank Flag Link Mon Jan 2, 2012
Don Tepper, Real Estate Pro in Burke, VA
I would look at what your interest rates are - if your rate is high on the credit cards I would pay them off then start on the car - if any of the credit cards are lower - pay off higher ones and put balance on the car. I think your best bet though are paying off the credit cards- lenders expect you to have a car payment but not a lot of credit card debt!
1 vote Thank Flag Link Mon Jan 2, 2012
Kelly, I notice no one in Baker responded to your request, try me at 541-523-5871 and we can discuss further... Andrew Bryan, Baker City Realty.
0 votes Thank Flag Link Wed Jan 23, 2013

I want to support a lot of what's said below and I certainly encourage you to speak with a mortgage professional as part of a pre-approval process. But what I really want to say here is, it's not as simple as what Suzi Orman always says. In other words, if your goal is home ownership, then you want to rig your system to get a mortgage approval, perhaps not make the perfect financial moves based on FICO score, long-term investing, etc. If you have a specific goal and that is your priority, you need to recruit those who can still act in your best interests, but help you do it.

These days, mortgage lending/borrowing is definitely not DIY.

Best of luck,

Rob Spinosa
0 votes Thank Flag Link Tue Jan 3, 2012
You need to look at what will have the best effect on your FICO score, which can affect your mortgage rate. Zero balance credit cards are not necessarily the best. Definitely talk with a lender. Let me know if you need a referral
0 votes Thank Flag Link Sun Jan 1, 2012
I would encourage you to speak with a mortgage professional before paying towards anything. It could be money needed to use towards a down payment if needed, closing costs if not paid by the seller, or reserves. These factors will vary greatly depending on your loan program not to mention your ideals, goals, and needs.
0 votes Thank Flag Link Sun Jan 1, 2012
There are different ways of looking at this and I strongly encourage you to meet with a mortgage lender before you decide. Your scores, debt ratios and available down payment & closing costs all need to be considered before you decide.
As a formerly licensed lender I can envision various scenarios with different outcomes, so specific answers here based on limited information may not be right for you.
The other benefit of meeting with a lender early is to verify your credit report is clear of errors. If it's not you have a chance to address them early in the process. You will also find out if you are better off having some of that cash in hand. Get to a great local lender and see what you come up with together. Best of luck.
0 votes Thank Flag Link Sun Jan 1, 2012
I'm a Realtor, not a financial advisor... but what I would do is pay down the credit cards... because the rate on my credit cards is much higher than any car loan. However, you may wish to talk to a credit counselor... see the link below for a way to look for a not for profit credit counselor.
Web Reference: http://www.nfcc.org
0 votes Thank Flag Link Sun Jan 1, 2012
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