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6 Debt Management Strategies to Help You Buy a Home in Less Than 12 Months

6 Debt Management Strategies to Help You Buy a Home in Less Than 12 Months

June 24, 2021

If you’re looking to buy a home and move in the next few months, you can make a few strategic moves on your debt that will make you look good when you apply for a home loan. If you wait until you apply, there's not a lot you can do to get mortgage approval when you’re in debt, so it’s better to start now.

Get Rid of Debt Quickly to Buy a Home

More than half of Americans spend more than what they earn each month and use credit to narrow the gap, according to a Pew Research study. Tackling your debt takes time and effort, but combining the following strategies and consistency can help you successfully dig your way out of debt. Here are some tips so you can buy a house in the next six to 12 months.

Manage Your Credit Utilization

Using your credit cards properly plays a significant role in establishing your credit score. Credit utilization ratio takes into account your credit card debt and your accessible credit — for instance, having a 70 percent ratio means that you have a higher risk of not paying off your debt. Although you'd want to keep your credit utilization under 30 percent, a zero percent utilization ratio could also be fatal to your credit score.

Don't Close Your Old Cards

Closing credit cards you've paid off can end up lowering your credit score because it decreases your available credit, reducing your borrowing capacity. You can pay off other balances to diminish the impact of closing a card on your credit utilization, which can impact your score. Another means of increasing your available credit is to ask your creditors to increase the limits on the cards you already have. Increasing the limits on your credit cards doesn't mean you should spend more, though — this is just a strategy to boost your credit score quickly so you can get pre-approved for a mortgage to buy a home.

Settle Old Debts 

It is essential to also work with creditors to pay any old debts you may have, including delinquent debt that your creditors have sold to a collection agency. Not only can solving old debt set you free of collection calls, but it will also improve your credit score. You can also try negotiating with creditors, offering to pay off old debt if they report the account as paid. However, ensure you get the agreement in writing and signed before making any payments.


Pay Your Bills on Time

Once you've started to manage your debt, ensure you pay your bills on time — especially credit card bills, as USA Today points out. This proves you’re a reliable card user who pays your debts. Because bad credit takes seven whole years to disappear from your credit report, you should get started early to get back on the road to better credit.


Find a Reasonable Mortgage

When applying for a mortgage, look closely at the fine print. Buying a home can help you develop equity and qualify for tax benefits, but unlocking these advantages depends on getting a mortgage that makes sense for your financial situation.

Many first-time homeowners find an FHA loan is a palatable solution, thanks to broad qualification requirements, low down payment options and comfortable interest rates. FHA loans are also eligible for streamlined refinancing. You can apply for FHA loans easily as well, even if you don’t have a lengthy credit history, thanks to online lending institutions. Just be sure to compare terms before you commit to a loan.

Consider DIY Repairs

When preparing your current property for listing, you should consider making a few DIY repairs, which will help you save money and add more value to the house. Whether you hire professionals or do it yourself, focus on the most critical renovations to ensure that the money you spend supports a higher asking price. Smaller and less expensive updates like floor repairs, water stains covering, etc., and good staging will have a great return. Besides, ensure you have a down payment ready. If you don't know how much you need to prepare, look at home prices in your area of choice.


The Bottom Line

Managing your debt in a few months can be simple if you're using a few practical steps, including ensuring your credit report is updated and correct, using available credit wisely, and paying bills on time. Before you know it, you'll have better credit, allowing you to purchase a home quickly.


For trustworthy guidance on financial matters or help finding insurance solutions, connect with Reardon & Associates. Call (909) 543-0201 for information on what we can do for your home or business. This article was written by an independent third party. It is provided for informational and educational purposes only. The views and opinions expressed herein may not be those of Guardian Life Insurance Company of America (Guardian) or any of its subsidiaries or affiliates. Guardian does not verify and does not guarantee the accuracy or completeness of the information or opinions presented herein.