Paying off debt before buying a home

Why lenders look at debt-to-income

Debt-to-income, or DTI, compares your monthly debt payments to your gross monthly income. Lenders use it to judge how comfortably you could take on a mortgage payment. Lower monthly debt payments generally mean a lower DTI.

Lenders and loan programs set their own limits, so ask a lender what applies to you.

General preparation

• Pull your credit reports and fix any errors you find.
• Pay down revolving balances where you can, and avoid opening new accounts right before applying.
• Keep making every payment on time.
• Build savings for a down payment, closing costs and an emergency cushion.
• Avoid large new purchases on credit while you shop for a home.

Talk with a professional

A mortgage lender can tell you what you may qualify for. A HUD-approved housing counselor can help you prepare, often at low or no cost. Their advice should guide your timing, especially if you are using cash flow cycling on a card while you shop.

Every result depends on your income, interest rates, card terms and payment behavior. Nothing here guarantees a payoff date or a credit score change.

Keep learning

• How to improve your monthly cash flow
• Pay off debt without closing your credit cards
• How to read a credit card payoff estimate