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The Market for Mortgages Creeps Back; Use Down Payment to Pay Off Consumer

We had several clients come to us in recent weeks with $30,000 to $40,000 saved up for down payments, but they also had substantial quantities of consumer debt (car loans and credit cards). It is always our advice to use most of the down payment to pay off the consumer debts, and then get FHA financing with a minimal 3.5% down payment.

In the case of one borrower with a little over $30,000 in cash savings (and “gifts”) we used $20,000 to pay off consumer debts with over $900 of monthly payments. This left the borrower just enough for a minimum $10,500 down payment for a $300,000 home*. And while the smaller down payment did increase his mortgage, his mortgage payment was only increased by about $115 per month. In other words, this buyer’s “net” payment went down by $800 by using his savings to pay off his consumer debt.

*Buyer had to get a seller credit to cover his closing costs.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167