Profile picture for Andrew P A

Better to decrease DTI or make a larger down-payment?

I am a little while off from buying a home but am doing my research early.  I was wondering if, from a financial perspective, it would be better to pay off some of my student loans, so as to reduce my DTI, or to save that money and put it towards a down payment on a house.  Does DTI or %down have a bigger impact on loan terms?  According to the Zillow Affordability Calculator, I could afford more home by reducing my DTI to zero rather than putting that money towards increasing a down payment, but I figured someone here may know something more about this.  Thanks for the help!
  • November 06 2013 - Los Angeles
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Answers (4)

Best Answer

Paying off Credit cards, student loans, car payments from my experience from being in the mortgage industry for over 10 years is far better off, helps you qualify for a large loan and/or makes you a better candidate to get a loan through, since you will have lower DTI ratios, granted you purchase below your means, unfortunately many sellers believe having a larger down payment makes it easier for a close to happen, either way you still need to qualify for a loan, and you will need to be within the DTI ratios that underwriters follow. If you have further questions on the subject please do hesitate to contact me directly. 
  • November 06 2013
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Profile picture for Andrew P A
Thanks everyone for the advice!
  • November 08 2013
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Profile picture for JamieTian
Hi,

I would suggest that you talk to any lender (your local bank, credit union, any mortgage broker) and they can help you figure out your options and calculate what will be better for you, and also get you pre-approved for a loan. This pre-approval is free and there is no obligation to use this lender to purchase your home.

I would be happy to suggest a few lenders to you if you need it, feel free to contact me directly with any further questions as well.

Best,

Jamie Tian
Rodeo Realty
  • November 08 2013
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Profile picture for Blue Nile
It really depends on what interest rates you are paying for the other debt, and if you can make a large enough down payment to avoid mortgage insurance.

Obviously, the goal is to put as little money toward interest and insurance as possible, while still having enough to live off of and pay down the principal on all debt.
  • November 06 2013
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