First Time Home Buyer Debt Consolidation

First Time Home Buyer Debt Consolidation

First time home buyer debt consolidation is something that most of you will have to think of when buying a home, especially if you already have some significant debt.

The thing with debts is that they always make you feel financially insecure. You feel like you’ll never be able to gain financial control until the debt is off your shoulders.

In the case of first-time home buyers, the amount of debt is usually enormous. It takes a heavy toll on the buyer’s financial decision-making ability and renders him incapable of the same.

But it doesn’t necessarily have to be like that. 

It is possible to consolidate debts for first-time buyers as well. The trick lies in understanding how debt consolidation works and how it impacts your chances of obtaining a mortgage.

This article will try to explain a few things on how debt consolidation for first-time home buyers works. 

Consolidating debts into home loans

In most cases, mortgages offer lower interest rates compared to other types of debts. This is mainly because the home is used to secure the loan, and it will be repossessed when the payments stop. Because of that, many consumers consider incorporating their debts into their home loans.

But it isn’t as simple as it sounds. There are a few tricky aspects of it as well.

To begin with, mortgage lenders wouldn’t want to loan money amounting to more than your home’s present worth. Hence, you will need to offer a bigger sum as a down payment to consolidate your debt into a home loan.

Moneylenders would also want you to possess good credit to add additional debt to your mortgage.

You would need to discuss the possibility of such a consolidation on the basis of the loan amount with your lender. Many customers struggle to meet up with the DTI (Debt to Income) ratio requirement.

Home loan consolidation might be a good way to help you qualify for the home loan itself. 

Benefits of first time home buyer debt consolidation

1. Convert multiple payments into a single one

First time home buyers can avail of debt consolidation and simplify paying debts by making their monthly payments smaller. This can be done when the payoff period is stretched out farther.

Most people flaunt multiple credit card balances and debt repayments. If you are among them then consolidating your debts into one single one would lighten your burden significantly.

Your debts would still exist but would get rolled into one having a single deadline. This way you can focus on only one and hence relieve yourself from multiple payment worries.

2. Lower rates of interest

This is the most prevalent reason for opting for debt consolidation. A majority of unsecured debts have a considerably high-interest rate which adds to the debt you pay every month.

When you consolidate multiple debts into one single home loan you have an opportunity to secure a lower interest rate. If you manage to do so you will hence pay lesser amounts in the long run.

You will require a good credit score to secure a lower interest rate.

3. Reduces risk of collateral repossession

As we brought up the topic of lowering interest rates, we’ll explore a simple way of doing that. When you offer up an asset as collateral it will help you achieve a lower interest rate. But in that case, you will need to handle regular payments stringently.

Otherwise, you can end up having your asset repossessed by the collection agencies. That is not something we’ll like to end up at all. Debt consolidation comes in handy in avoiding that.

When you opt for a first time home buyer debt consolidation you only offer one asset as collateral. It saves you from running the risk of having multiple collection agencies taking things away from you as collateral.

Buying a house after debt consolidation

If you do your research carefully and plan things accordingly, you could consolidate your debt even before you’re trying to get a house mortgage. The goal is to get a debt consolidation loan that can lower your EMIs and make your DTI acceptable to the vendors.

The larger your loan, the lower its repayments as you get a longer-term. Moreover, if you can refinance your student loans as well, your DTI can come down further. 

When you think about buying a house after debt consolidation, you must ensure proper planning. Initially, your credit score will take a hit, but it will recover in a few months.

The best time to consolidate your debt would be at least six months prior to your mortgage. There’s no point in closing your credit cards, but you can put them aside, preventing further usage.

This will help you maintain a good debt utilization score. So with a hint of proper planning, you can manage to buy a home even while having debt. You can quickly run a number check and bring down your DTI to get inside your first home. 

What is Mortgage refinancing?

The term mortgage refinancing refers to replacing your old home loan with a new one. You are trying to refinance into a loan having an interest rate lower than your current one allowing you to save money. 

When to opt for refinancing?

Interest rates vary considerably with time. At times they hit a massive high, while at others, they sink below the usual. When you refinance your home loan, the old interest rates are changed with the new one.

Hence it makes sense to opt for loan refinancing when present interest rates drop below your original loan interest rate.

When your original mortgage rate is considerably higher than the present one, it’s time to try for a loan refinance. You also need to improve your credit score so that you are eligible for a loan refinancing. 

Now the trick is to identify the exact point when you should go for it. A thumb rule states that when the rates drop a minimum of half a percentage point, and you plan to stay at the same home for the next five years, then a refinancing of your loan is worth considering.  

Related: 

First time home buyer debt consolidation: Conclusion

Buying a home through a mortgage can be a troublesome venture for first-time home buyers. First time home buyer debt consolidation can come across as a very helpful facet in this regard. All you need is the proper guidance to seek it through. 

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