Should You Pay off All Your Debt Before Buying a House?
In short, yes, you should pay off all of your debt before buying a house. Why? Well, being completely debt-free before putting yourself into more debt is a smart move that can allow for financial security and quickly pay off your home loan debt. Paying off all personal debt can boost your credit score and help your home loan applications have a higher chance for approval. Entering a home loan agreement with pre-existing debt can make your rates rise while limiting the amount of money you will be approved to borrow.
Low credit scores can seriously impact the way a lender views your home loan application because it can indicate riskiness that lenders take into account when determining approval status. In addition, negative repayment history can suggest financial instability resulting in a declined application.
Lenders perform credit checks for all home loan applications, which can also decrease your credit score. Lenders do this to get an idea of the financial responsibility of an applicant to avoid approving a risky home loan agreement that has the potential of ending in negative results for both the lender and borrower.
Potential borrowers can boost their credit scores by paying off personal debts, minimizing high credit limits, closing unnecessary credit cards, and reducing high-interest-rate debts.
Have questions about preparing to purchase a new home? Reach out to us today at Mortgage House and speak with our lending specialists for personalized advice and financial planning to best prepare for your home-buying goals.