Planning for Homeownership

Retiring Debt and Improving Your Credit Profile

Buying a home isn’t only one of the largest purchases you’ll make in your lifetime, it’s also one of the most complicated. In order to qualify for a loan, you need eliminate as much debt as you can. In this portion of the coursework, we’ll work with you to consolidate and reduce your debt. Some of the topics that we cover include:

  • Strategies to pay down high-interest debt
  • Debt-to-income ratios
  • Managing student loan debt
  • Accessing your credit profile and submitting corrections

We will also cover how your mortgage can allocate your payment towards your principal, interest, or an escrow account for tax and insurance, and we will discuss payment strategies to build equity in your home.

Aside from a good mortgage product, there are lots of other benefits that come from retiring your debt and improving your credit profile. You may avoid security deposits for utilities and phones, and you might get better interest rates on your banking products. In every respect, getting rid of debt brings good things.

Strategies to Pay Down Debt

In the early part of our lives, we have the ability to accumulate lots of debt. Credit was widely available and ready for your signature. From student loans to vehicle purchases to ill-advised credit cards, you may have built up a pile of debt over time. We guide you through multiple strategies for addressing this debt and paying it down quickly, including:

  • How to consolidate your debt and lower your interest rate
  • Monthly debt review practices
  • How to measure your progress and celebrate your milestones
  • Understanding the psychological toll of debt accumulation

There is no one-size-fits-all solution to debt retirement. For some, keeping student loans at a low interest rate is favorable to their personal cash flow plan. For others, retiring all debt is essential to saving as much money as possible for a down payment.

We work with you to better understand the right combination of tools and advice you need to successful retire toxic debt.

Understanding Debt-to-income Ratios

If debt feels like an unmovable pile of obligations, your debt-to-income ratio provides a better picture of where you are heading. This metric is widely used by mortgage providers to better understand how your debt fits into your overall financial picture. The logic is simple: before issuing you a big loan, your provider wants to know whether you can afford to service the debt you already have.

But your debt-to-income ratio is only a snapshot in time. As you pay down debt, and as your income rises, this ratio changes. That’s why it’s important to work on your financial picture early. By the time you apply for a loan, we’d like to make sure you can qualify for the best products. Some of the topics we cover include:

  • The principles of debt-to-income, and why it’s important to mortgage lenders
  • What happens when you pay down debt without a change in your income
  • What happens when you get a raise, but fail to pay down your debt

By the end of this session, we will demystify the debt-to-income ratio and help you make informed decisions to whip it into shape.

Ways to Manage Your Student Loan Debt

Earning a Bachelor’s degree can add $900,000 to your total lifetime earnings. But with the soaring costs of tuition, room, board, textbooks, and activities fees, the cost of earning a Bachelor’s degree can add up. Depending on your student loan product, you might be paying an interest rate of 3.86% - 7.21%. On a principal of $50,000, that can add up quickly.

For most of us, paying off student loan debt in full isn’t an option. That’s why we cover various strategies for managing student loan debt, including:

  • Negotiating new payment terms with your lender
  • Understanding public loan forgiveness programs
  • Student loan consolidation at a lower interest rate

Automatic payments also help establish a payment history that is on time and consistent. Your student loan debt is an important indicator for how you will repay your mortgage loan, so it’s important to get it right.

Reviewing and Managing Your Credit Profile

As soon as you apply for a mortgage, purchase a cell phone plan, or sign an apartment lease, someone is pulling up your credit profile. By law, you are allowed to get an updated copy of your credit report every year. But what does it say, and what does that mean? We help demystify this important document, highlighting all of the ways you can interpret and address what it contains. For example, some of the topics we’ll cover include:

  • How the main credit agencies interpret your data
  • Requesting your free credit report every year
  • Addressing discrepancies in your credit report

Getting your credit profile in order before applying for a mortgage is akin to tying your shoes before bowling. This is an important part of your homeowner fundamentals, and we make sure you understand it fully.