So you want to buy a piece of the American dream: a house of your own. But if you have debt, you’ll need to pay off as much as possible before applying for a mortgage loan, while also saving for a down payment. It will take some time, but you can work toward both goals simultaneously. Here’s how.
Set a savings goal
If you’re serious about buying a house, you’ll need a hefty down payment. Commit to a specific price range for your future house and set a savings goal for your down payment. To figure out how much you’ll need to save, research FHA loan qualifications or talk to a banker or mortgage lender. Then determine how long it would take to reach that goal, saving as much as you can each month. Motivate yourself to keep saving by focusing on the fact that you’ll be able to buy a home by that deadline.
Establish a separate savings account
If you don’t already have a savings account earmarked for your down payment, set one up. It’s best to keep your down payment savings separate from other savings — maybe even at a different financial institution — so you won’t end up spending the money on something else.
Be strategic with your debts
Make a list of all your debts and the interest rates for each. Consider using the debt snowball method — pay off your smallest balance first while keeping up with the minimum payments on your other debts. Once that first one is eliminated, direct that money to the next highest balance, and so on. Don’t forget to budget your down payment savings into this plan.
Paying off debt and saving for a house are both long-term goals — neither of them are likely to yield quick results. But being diligent with your savings and debts will move you forward. Remember that consistently paying down debt will help raise your credit score, which may make it easier to get a mortgage loan. Just keep socking away savings and gradually paying down debts, and before long your efforts will pay off.