By Natalie Jones
Buying a home is one of the most important investments you’ll ever make in your
lifetime. If you plan on purchasing a home anytime within the next six to 12 months, you
need to make sure you can afford the payments. One way to improve your ability to
meet your mortgage commitments is to reduce your current debt as much as possible.
Here are a few helpful tips for managing and reducing debt in preparation for buying a
new home, brought to you courtesy of A&E Properties.
Analyzing your current debt is the first step toward managing it effectively. Take some
time to sit down and record all of your financial obligations in a notebook or
spreadsheet. Make sure all sources of debt are noted, including monthly car payments
and the smallest credit card accounts. Next, write down all of your interest rates. You’ll
notice that some of your debt is associated with very good interest rates (such as car
payments or some student loan payments) while other sources of debt come with high
interest rates (such as credit cards and payday loans).
2. Make Realistic Plans for Paying Down Debt.
When deciding how to tackle your debt, you may want to pay down any balances
associated with high interest rates. This is a wise way to minimize the amount of interest
you pay. Many financial experts recommend that you meet all of your monthly
payments, but put a little extra money every month toward the debt with the highest
interest rate. Once you pay off that debt, focus your attention on the next source of debt
with the highest interest rate, and so on.
If you have a lot of small sources of debt, you may fare better with the “snowball
strategy.” This is when you pay off your smallest debt first, then move on to the next
smallest debt, and so forth. Using this strategy is encouraging because it yields rapid
3. Build a Manageable Budget
Budgeting is a skill many people may not know how to do effectively or struggle to
maintain. A budget is just a guideline for how you’ll spend your money. It helps keep
you responsible so you don’t overspend and add to your debt problem.
When creating a budget, you need to make sure it’s manageable. Otherwise, you’ll
likely get discouraged and break it. To start, calculate your monthly income, then
consider using the simple 50/30/20 rule as your main budget framework. This rule
states that 50 percent of your income each month will be reserved for your needs, 30
percent can go towards your wants, and 20 percent gets put away for debt repayment
4.Study Your Various Home Loan Options.
There are different home loan options available. There are even options to pay for
points on a mortgage so you can lower your home loan rate further. To do this, you’ll
need to pay the lender a fee at closing in exchange for a better interest rate. This may
not be right for everyone, but it could be a good solution for you, depending on your
finances and how long you plan to own your home. Use a mortgage points calculator to
Now that you know a few great ways to prepare to buy a home within the next year, it’s
time to get started. Decide which methods from the above list you’ll use to decrease
your debt and be in a good financial situation to purchase a new home.
Ready to build your dream home? Have A&E Properties build you a custom home
that suits your lifestyle! 302.632.2445
Natalie Jones : homeownerbliss.info