Should I clear my debt ($8000) or save up for a down payment?

Question

Well, I currently live in a rental property and the lease will be up end of June. I am torn between renting for another year or saving up for the next few months (especially since tax season is near) for a down payment on a duplex (house hack) and FHA will require a 3% down payment ($12,000). My credit score is between 647-650, I know FHA's minimum credit score is 580. I'm thinking save up and only pay minimums until I can purchase a house and then pay off the remainder of my debt or clear my debt, renew my lease, and wait until the year is up? Help!!!!

Michael Heisterkamp · Answer

If you have CC's definately pay that off before you start to save for a property.  The cost of capital on your credit cards is far higher than what you will make in real estate.

Vanessa Lago · Answer

Thanks Craig!!!

Craig Curelop · Answer

@Vanessa Lago - If the debt is collecting interest over 10%, I would pay that off immediately. If not, I would make the monthly payments and start house hacking. The returns you get on house hacking will be far greater than 10%.

Aaron K. · Answer

@Vanessa Lago yeah as everyone else has said pay off the credit cards, if you find yourself in CC debt paying it off is the best investment you can ever make.

Vanessa Lago · Answer

Hi Charlie, yes! I live in Miami. The market is really expensive down here.

Charlie DiLisio · Answer

How did you arrive at the 12,000 down payment?  Its 3000 for every 100,000.  Is the duplex 400,000?  Just curious.

Theresa Harris · Answer

If the credit card debt is high interest (e.g. 20%), definitely pay it off.  You can then take a year to save, see how much financing you can get and take time to find yourself a good home.  The last thing you want to do is use all your saving to buy a place and then have a vacant unit or unexpected repairs.

Vanessa Lago · Answer

Thanks for the response Aaron! I have student loans but not too worried about it, mainly high interest credit cards! I am going to see which options my landlord offers. Thanks again for the input :)

Aaron K. · Answer

Depends on the debt, also there are other options than signing a new full year lease, depending on where you are it is possible your lease will transition to month to month, if that is not the case and you've been a good tenant you could ask for that or a 6 month lease.  You could also move to short term accommodations while you finish saving.  I would say if this is high interest debt it will almost certainly make sense to pay it off first, if it is like a student loan at 5% it could probably go either way.

Should I clear my debt ($8000) or save up for a down payment?

Most Popular Reply