FROM OUR BLOG
June 28, 2016

One of the biggest hurdles for home buyers and saving for a down-payment is having debt under control to qualify for a loan.

Often people are so caught up in low interest rates and credit scores, they forget that DTI (debt-to-income ratio) plays a huge role in getting a mortgage.
Simply put, your DTI compares your expenses and debt to how much you’re able to earn.
A lender needs to know you have sufficient funds to cover housing expenses and monthly debt obligations.

Paying off debt, especially from multiple sources is overwhelming. We recommend “The Stack Method” explained here by Lifehack.

Here are the basics:

  • Prioritize debt payback by the highest interest rate and work to lower your interest rate.
    Addressing the highest interest debt is the most crucial step in this process!
  • Hide the credit cards and stop spending unnecessary money.
    Define the lines between want and need and stop creating new debt!
  • Create a realistic monthly budget and then decide the amount that can go to prioritized debt.
    Spend within your means in a monthly budget and pay off the debt by highest interest rate first.
  • Make a repayment schedule covering the minimum payment PLUS the new, budgeted amount.
    Cover minimum of all debt, and create schedule of larger amount for high interest debt.
  • Track your progress, reward yourself (within reason), then tackle the debt with the next highest interest rate.
    Once you get one debt paid off, it’s OK to celebrate! Just don’t go too crazy.
  • Forgive yourself any set-backs and keep at it!
    We all fall off the spending wagon or have life emergencies come up. Have patience and be proud of your hard work!

If your debt is out of control, this technique is the most effective!
Once debt is addressed, if you have credit issues, read our recommendations on how to improve your credit score.

PAYING OFF DEBT

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Sierra Pacific Mortgage Company, Inc.

Sierra Pacific Mortgage NMLS# 1788. Michael Shotnik NMLS: 218281, CO License: 100017466. Not licensed in Alaska or New York.  To check license status of mortgage loan originator, visit D.O.R.A. and NMLS consumer access.