Pay down debt or put toward down payment?

[brswarm]

Hello,

Here is my situation: I have about $39,000 in debt and unfortunately have come into some money due to a death in the family. I'm to receive $21,000 soon. I'd like to buy a home so I'm wondering is it better for me to use the money to pay down debt or should I use it for a down payment. My fico score is about 750 right now so I assume it would rise if I pay down some debt. What is the best way to handle this? I have a long credit history with no late or missed payments ever. I also earn about $80000 gross per year.

Thanks for any advice.

AE

[happy0510]

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@brswarm wrote:

Hello,

Here is my situation: I have about $39,000 in debt and unfortunately have come into some money due to a death in the family. I'm to receive $21,000 soon. I'd like to buy a home so I'm wondering is it better for me to use the money to pay down debt or should I use it for a down payment. My fico score is about 750 right now so I assume it would rise if I pay down some debt. What is the best way to handle this? I have a long credit history with no late or missed payments ever. I also earn about $80000 gross per year.

Thanks for any advice.

AE

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The advice my LO gave me was to keep the money as reserves.    You can discuss this with your LO.     They will pre-approve you for an amount and you can pay off certain items to increase that amount.  However, I simply gave my LO the maximum payment I felt comfortable with and then she gave me the figure.

Definitely go over this with them when you apply. Don't do anything yet!

[Anonymous]

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@brswarm wrote:

Hello,

Here is my situation: I have about $39,000 in debt and unfortunately have come into some money due to a death in the family. I'm to receive $21,000 soon. I'd like to buy a home so I'm wondering is it better for me to use the money to pay down debt or should I use it for a down payment. My fico score is about 750 right now so I assume it would rise if I pay down some debt. What is the best way to handle this? I have a long credit history with no late or missed payments ever. I also earn about $80000 gross per year.

Thanks for any advice.

AE

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If all your fico scores are 750 or above you most likely would qualify for lenders best conventional mortgage program.  So paying down debt to have your score go from 750 to 780 - 800 will not benefit you.  Your better off using it as either a down payment or for reserves

[brswarm]

Thank you for the replies. I just found out that I'm actually getting $29,000. I suppose it's best to go sit with a realtor and discuss my options. From what I read, it would benefit me to get my fico score to 760 or over for the lowest rate. I'm thinking that I should just pay down enough to push it over 760 and use the rest for down payment or reserves. It is very tempting to just wipe out most of the debt though. It came from an injury and a long time out of work a few years back and I never thought I'd get rid of it.

Thanks again for the advice.

[Anonymous]

Is that 29K after taxes? If so, I'd pay off 10k of debt which would definitely be a plus and then you still have almost 20k in reserves. Use what you need to get the house and then put the remainder into the debt again.

[Anonymous]

How much house are you purchasing??

It may be conventional wisdom to get your score to a certain threshold however you have record low interest right now and people with scores alot lower getting very impressive rates right now.  The more you buy the lot less of the purchase price of the loan the almost 30 grand will take out and if you can get .50-. 75 of a percentage point and you would be saving more a month as opposed to the relatively slightly less loan you would take out.  But that's no guarantee because you still would be in the dark as to whether paying down the debt/ raising your score by those few points would have granted you  a lower rate unless you talk to the lenders you plan on possibly dealing with maybe doing  a prequalification or a preapproval .  If you ask them whether you qualify for better rates/ a better deal if you get to a certain fico.  In otherwords it's like asking what Tier am I in if it's not one than how much would I be saving.  What would be the rate differential?

I don't know if your getting less house but if you already have money and you put this 30 k towards maybe 200,000 or less than your taking out less loan and it may save you more in the end if you put it towards the down payment.

Edit: I've read ppl from the 620-700 range getting 4.25-4.75 range and have yet to only read about sub 4% in a 15 yr loan ... so unless that's what you plan on doing you may not be saving much.