If a buyer has consumer debt, it is usually better to make a smaller down payment. We again had a buyer this week who insisted on putting 20% down even though she had a tremendous amount of consumer debt. We convinced her to instead put down 3.5% and get an FHA loan, and then use her savings to pay off all of her consumer debt.
She was reluctant to do so, but she did not qualify for financing without paying off her consumer debt. In addition, her overall debt obligations, after paying off her consumer debt and with the smaller down payment, were over $1,000 less. She is saving $1,000 per month by putting down less.
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