Should You Pay Off Debt Before Buying a Home?

"“Lenders want to see your monthly debt below 43% of your gross income. For most buyers, strategically paying down high-interest debt before applying is the most meaningful way to improve your ability to qualify for a loan and maximize your purchasing power. It's not about being debt-free; it's about having good debt vs bad debt.”"

"The strategy targets the two most important factors in a mortgage application: the 43% “ceiling” for Debt-to-Income (DTI) and the overall impact of monthly obligations on qualification. Lowering monthly debt payments directly expands the home-buying budget available for down payment and affordability. This approach emphasizes meeting lender thresholds rather than achieving a zero balance before applying."

"Prioritize high-interest revolving accounts, like credit cards, to boost a credit score and secure a lower mortgage rate at the same time. Cash should be directed toward reducing the most expensive debt because it improves both creditworthiness and mortgage affordability. The goal is to improve eligibility while maintaining enough funds for the down payment."

Mortgage qualification depends heavily on monthly debt obligations measured through Debt-to-Income (DTI). Lenders look for monthly debt below 43% of gross income, so paying down debt can improve loan approval odds and increase purchasing power. The focus is not on eliminating all debt, but on shifting balances toward “good” debt and reducing “bad” debt. High-interest revolving accounts such as credit cards can be prioritized because lowering them can raise credit scores and support access to lower mortgage rates. Buying a home does not require being debt-free; success comes from balancing debt repayment with the down payment to maximize overall purchasing power.

Read at Redfin | Real Estate Tips for Home Buying, Selling & More