Seasoned and varied credit lines can actually help your FICO score. However, paying them off and closing them down can have a negative impact. If you're talking about your credit cards and department store cards, paying them down can definitely help your credit. Also, paying off collections typically stops your score from dropping long-term, but doesn't usually raise your score. However, paying off a collection also brings the report "current," which can actually drop your credit score in the immediate time period. When it comes to paying off collections, it's certainly good to clear your credit report in the long run. Read " Should I Pay Off My Collections?" to find out why you may want to wait on paying off collections. However, do you need to pay off all your bills and be debt-free before you buy a home? Not necessarily (sorry Dave Ramsey). Part of this answer depends on what you mean by "paying off bills." If you're talking about paying off old collections, slow down and talk to a mortgage consultant. Paying off bills: The pros and the consĬan you find a reason not to pay your bills? Hard to do, right? Paying off bills is not only a good idea, it's your obligation. That would be a "con" in the down payment category. Saving for a down payment for years and years may not fit your lifestyle and finances. Have you considered buying a home with an FHA loan that requires 3.5% down? While its commendable to save up $10,000 to buy your first home, you could be opening the door to your first home with just half of that amount, or even less. We know that saving a big pile of money while you're paying rent and other expenses can be challenging. The downside to saving a long time for a big down payment is that you may not need that large of a stash of cash. Even if you end up with a mortgage that finances 100% of the purchase (like the USDA Rural Development option) or a low down payment option like an FHA loan, you'll likely need at least some cash on-hand at the closing table. Saving for a down payment to buy a home is a great idea. With that in mind, let's look at each situation separately. If you're able to do both, you'll come out ahead even more so. And w hether you pay off bills or save money for a down payment, it's all good because you're taking steps towards financial freedom. We'll go over some pros and cons and share a couple of answers from our mortgage consultants. The information we provide is meant to help you focus your efforts on what works for you. Amerifirst Home Mortgage is a mortgage lender, not a financial counselor or advisor. Would it be in our best interest to save for a down payment or pay off some bills before a purchase is attempted?
My wife and I are currently beginning to think about buying our first home. We do our best to answer them privately and publicly, in hopes of helping the person asking but also anyone looking to buy. From blog comments to social media posts to emails, we get lots of questions about buying and financing a home.
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