Debt Versus Savings
I can’t remember how long it’s been since I wrote about debt and the balance between savings. I know what the more famous financial experts say; “Be debt free and increase savings.”
I may not be famous but I like to believe I am more like the consumer advocate Ralph Nader when it comes to consumer financing.
Finding that right balance is just that, a balancing act. I could really write a book on just this subject and give you hundreds of examples of the different scenarios I have worked with over the years. But today I want our focus to be on the preparation process of the loan application and taking it through to the closing of your new home purchase.
Ideally, I would have to agree with the thought and practice of no debt and all savings, However, some or a little bit of debt can prove to be very beneficial as are proper savings or investments. Most people fit in the middle of the extremes of all debt and no saving to no debt and all savings. The combinations are as different as the spots on a leopard. They may look the same from a distance but up close and personal they are very different.
The extreme of having a lot of debt and no savings limits your purchasing power because of an exhausted debt to income ratio leaving no room for any new debt like a home mortgage loan. The other extreme is having no debt and a lot of savings; this also has a negative affect as these types of people have no active credit lines there-for cannot qualify for a loan due to a lack of credit history.
Hold on before you go and consolidate or pay off any debt, or on the flip side before you run out and apply for three or four credit cards. You should get with an expert like myself who will not only review your financial picture but also review your overall goals for home ownership and its impact on you a retirement age.
There are many factors one should consider when purchasing a new home:
- How much debt to pay off to reduce your debt to income ratio.
- Paying off too much debt may leave you short of a good down payment or closing cost. What is the best down payment for you?
- How are you going to pay for your home.
- Balancing out paying off other debts
- Saving money for an emergency fund
- Investing for your retirement and when you retire how much money are you going to have to retire on and pay your debts at that time.
Most of all how to protect and use your home as part of your retirement plan. For most people this will be their greatest asset.
Many of you reading may ask what my background is and why I think this way. I have had my security license for investing, an insurance license, a real state license, and my mortgage license. I have learned and been mentored by some of the best in all these industries. I am more than a licensed loan originator just out for a single commission on a loan. I am your mortgage guy for life.
So, no matter who you choose to work with, ask questions research the answers you have been given, get all your facts and we will see you at a happy closing table.