Updated: Oct 31, 2022
If you have a home purchase on your radar in the next six to twelve months, you may have already started to examine your finances even more closely to ensure your home purchase is financially viable. Whether you hope to settle down in the city or the countryside, managing your debt now is crucial to ensure prior to buying a home in good shape. Before you start your wish list of home features or before you even apply for a mortgage pre-approval, try reducing your debt with these six ways.
1. Find the Right Method to Pay Off Debts
Paying down your current debts may be the best way you can begin freeing up space in your finances for a home purchase and all the expenses that will likely come with it. However, when it comes to paying down debts, there’s no one-size-fits-all solution. Spend a little time researching different debt-payment strategies to find the one that works best for you.
For instance, you may find that it’s best to pay off higher-interest debts first to avoid piling up interest payments. On the other hand, you might start to gain steam by paying off your debts from smallest to largest. Try both methods and see which one gets you the most motivated to pay off important debts. Having a plan is the most important factor.
2. Cut Unnecessary Spending
Some researchers say that having a household budget is one of the best tools at your disposal to help you manage your money and avoid falling further into debt. If your house does not yet operate on a budget, creating one could help you cut down on spending to allocate more cash to the house fund. Try to reduce excess spending on:
Luxury items such as wine, high-end cars, etc.
3. Rebuild Your Credit and Appeal to Potential Lenders
If you plan to put in a mortgage application to afford your home, building good credit as soon as possible. You may want to:
Check your credit report for false items
Pay off all debts
Pay credit card bills on time
Contact lenders directly to negotiate certain debts
4. Explore Home-purchasing Options
After you’ve gotten your debt in a manageable place, begin to search for homes. You may find an option offered below market value being sold ‘as is’. This means that the owners intend to sell it without responsibility for fixing any home-related issues. However, people tend to exercise caution when buying a house this way. Thorough due diligence is recommended; you don’t want to end up in a worse financial situation trying to fix the home’s problems.
5. Seek Professional Financial Advice
Lastly, when in doubt, you can seek other professional advice. For instance, it may be helpful to get in touch with a financial advisor, an accountant or a realtor.
In summary, these six ways of consolidating debt before buying a home are done by those that wish to purchase one in the near term. In a broader context, only you know which ways are best for you, and how your personal circumstances affect how you prepare for purchasing a home. Nonetheless, these six methods get you started on purchasing a home.
Otto’s Services provide information and guidance only, not advice or recommendations. “Otto’s Services provide information and guidance only, not advice or recommendations. In short, we'll tell you what you could do, not what you should do. Before taking any action, make sure you are comfortable and understand the risks. If unsure, seek financial advice”. In short, we'll tell you what you could do, not what you should do. Before taking any action, make sure you are comfortable and understand the risks. If unsure, seek financial advice.