A First Time Homebuyer Tip On How To Maximize Your Purchasing Power


A first time homebuyer tip on how to maximize your purchasing power. When purchasing a home a California first time homebuyer needs to know how consumer debt and its monthly payments affect their ability to qualify for a California mortgage.

Here’s a statistic to remember, per $100.00 in minimum payments of consumer debt that is paid monthly, a buyer loses $18,500 in purchasing power toward a new home.  This figure is based on a 30 year fixed fully amortized 5% interest rate.

Consumer debt can either be credit cards, auto or lease loan payments, and various installment loans.

A first time homebuyer looking for a California mortgage, may be carrying $350.00 in minimum card payments and a $400.00 auto lease or loan that is being paid on a monthly basis.  The combined payments of $750.00 equates to a loss of buying power of $140,000!  I do advise the applicant to target paying off the highest payment credit line and not necessarily the credit card with the highest interest rate.  When qualifying for a California mortgage, it’s all about minimizing your monthly payments to qualify and a good place to start is by pulling your credit report to compare balances to what you actually owe.

I originate California real estate home loans, and I have this exact conversation with homebuyers on a weekly basis and many times the prospective homebuyer has to do some homework in the form of paying off some debt to maximize their purchasing power and I may not see them again for 6 months or even a year until they’re ready to buy.

I do check up with them ever 45 days or so to see how they are doing on their debt reduction plan and to offer them moral support and keep them on track toward their goal.

If there is a relative that has given them a gift of funds towards a down payment,  I may advise the buyer to payoff debt with the funds instead of going toward the down payment.  You get more bang for your buck by paying off the debt.  A $10,000 gift towards a down payment may increase your buying power by $10,000.  But take that same $10,000 and payoff the $300.00 credit card payment that goes with it increases the first time homebuyer’s purchasing power by $55,500 using the same terms above.

Paying down debt to maximize qualifying power sounds simple but you would be surprised at how many first time homebuyers have not heard of or practice it.  Here’s a few other tips on what California first time homebuyers need to know.

When working together with a California first time homebuyer or a repeat homebuyer for that matter, and watching them execute a debt reduction plan that we worked out together, and than having them come back a year or more later and be able to buy a home, is one of the most gratifying feelings a California real estate loan originator will ever have and I hope to keep experiencing that feeling for many years to come.

If you have a question on this article or on anything pertaining to the California mortgage process or the first time homebuyer tip on how to maximize your purchasing power, click here and let me know!


Kevin Walton

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