Hi everyone, my boyfriend and I are hoping to buy a house within the next 2 years. Everywhere I have read has said to make sure you have no debts before getting into a mortgage. I personally have ~$6000 in credit card debt, also we are still paying off our car ($12,000). My boyfriend has no debt (besides being co-signed on the car) and has a good credit score (725) so he will most likely be the one on the mortgage. My question is—do we try to pay off our debt before getting a house or should we save for a down payment? I have read that if you pay off a credit card, it can negatively affect your credit score. I am currently trying to save while also paying a little bit above the minimum payment, but it seems so exhausting with all of the interest that comes out every month. Please help.
Personally, I would say get the debt down. You’re saying you’re stressed right now, then you’re going to add a mortgage payment.
Carrying credit card debt while saving for a house is mind-boggling. Pay off the debt first. It won’t hurt your score.
It doesn’t sound like you are in a position to buy a house in the timeline you mentioned. Homeownership is expensive and unpredictable. Not only should you be out of credit card debt (and have an aggressive plan to pay off the car), you should have a significant emergency fund and maybe a few thousand in a home repair/furniture fund. But I actually came to write that I would make sure your name is on the house title, even if your boyfriend is the only one on the mortgage. If you don’t plan on getting married before you buy the house, consider consulting an attorney and signing a cohabitation agreement. You need to protect your rights in the event of a breakup.
Get the debt out of the way.
What’s your debt payoff plan look like? Paying off debt mainly becomes a concern with house buying if it’s close together. You typically do see a dip in your credit score when you pay things off, but it recovers shortly after. If it’s looking like you can pay off your debt within a year or so if you go more aggressive, I’d say move forward with paying things off especially because fewer payments allow you to more comfortably afford a house.
@Riley
I’m stuck between debt snowball and the avalanche method. I find no matter how much I put on my $4000 card, the interest puts it in the negative every month. My other card is $2000. Feeling conflicted and stressed.
If you are paying the minimum on the $4000 card, the balance should be decreasing every month, even if it’s slow. There should be no in the negative due to interest. You have $2k on one card and $4k on the other. You are required to make the minimum payment, which will slowly pay the card off. Of course, you do not use the cards at all while there is debt and you are paying interest. Cut them up and delete them from wallets, etc., if you have to.
@Haze
Haven’t used the cards all year (small but very big victory for me ). We are using cash for our groceries and gas. Credit cards are being paid a little more than the minimum (usually rounding up to $100). Bills are paid in half increments every paycheck to make it a little easier, and whatever is left has been taken out in cash and put in an envelope hidden away for a down payment.
How much do you currently have saved? I would keep saving until you have a 3-month emergency fund, then aggressively pay off the debt prior to buying a house. Depending on your car payment, it can affect how much you get approved for. For every $500 a month payment you have, they knock off $100K on your borrowing power (general rule of thumb).
@Gale
We currently have a couple hundred saved.