1st Time Buyer Questions

6 Replies

Is it recommended to pay off all debt before purchasing or investing in real estate for the first time? 

Originally posted by @Princeton Brooks :

Is it recommended to pay off all debt before purchasing or investing in real estate for the first time? 


Depend on your debt to income ratio. 

I agree @Harjeet Bhatti . It all depends on DTI. I started out with a lower income so it was super helpful that I had a super low DTI ratio. If someone made a good amount of income, then debt wouldn’t be such an issue as long as you are under the DTI max requirements for the type of loan you are trying to get.

@Amy Herzing   Some time even though you have higher income may be you have higher debts also. In that case you still have to pay off debts if that will be recommended by your LO.

@Princeton Brooks - It depends on what the interest rate on your current debt is and how much you currently have. If you have a reasonable amount of debt (less than $100k), you could probably purchase real estate. Here is how I look at it from an interest rate perspective: 

If your interest rate is:

Less than 4% - make the minimum payments and keep the debt outstanding. 

Between 4% and 7%: It's up to your risk profile and whether you think you can make a better return in real estate. 

Greater than 7%: Pay it off 

Greater than 10%: EMERGENCY DEBT! Pay this off immediately. 

I hope this is helpful!  

@Harjeet Bhatti I like to assume people live below their means but you are correct that sometimes a higher income just means higher debt as well! Lower DTI is alway the way to go.

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