How to Prepare for the Spring Real Estate Market in 2022
3 Simple Ways to Buy More Home in 2022
Looking at making a home purchase this spring? This quick article explains some out-of-the-box strategies to increase your purchase price. All lenders base your ability to buy a home based off your "debt-to-income" ratio or DTI. There are only two variables, your monthly recurring debt and your income. For income to count, it needs to have been on your taxes for two years, so I'm just going to skip over that. What you do have control over is your debt. Here is how to hack your debt in order to increase your top dollar loan approval this spring.
1. Pay Off/Refinance Your Car Loan
This may sound crazy, but your car loan is typically one of the shortest loan types offered. 2-7 years only means you have to pay off the entire amount in that short time. Lowering that payment or getting rid of it completely will allow you to purchase more home.
2. Pay Off Your Credit Cards
Credit card debt usually has a much higher interest rate than other types, but the monthly payment is usually quite low per month. If possible, pay off or down those balances to get free up some more of that monthly recurring debt. DO NOT CANCEL YOUR CREDIT CARD. The length of time you have had credit is very important. Pay off the card but don't cancel the card.
3. Refinance Student Loans
Student loan debt can stick with you for a couple decades. DO NOT DO THIS ONE WITHOUT CONSULTING YOUR LENDER. The rules around how to figure your student loan payment changes from time to time. If you are still in deferment and haven't had a payment yet, then definitely talk to your lender. As these loans are a many-year debt, you may not get much bang for your buck. Refinancing is normally better than paying off these loans.
What's This Boil Down To?
Since most loans follow a 43% DTI, every $100 you remove from your monthly debt, you add $43 a month of home eligibility. How much extra home does this mean you can buy? I'll save you the complicated math but basically it's almost $10,000 more!! ($9,880.37 at 3.25% on a 30 year loan). So roughly, every $100 of debt you pay off allows you to get about $10,000 more of purchasing power.
I hope this helps you as you prepare to purchase a new home! Don't wait two years to add new income, pay down that debt to step up into the house you want.
Until next time!
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