In a study done by Prudential Financial Inc., it was reported that 52% of the Hispanic community believes that one of the top five most important financial priorities is reducing debt.
As the report mentioned: “In general, Hispanics seek to avoid it. In fact, 62% reported that there is no such thing as ‘good debt’ while 49% indicated if they can’t pay cash, they simply do not buy the item”.
But what is “Good Debt”?
According to Investopedia, “Good debt helps you generate income and increases your net worth.” One of Investopedia’s examples of ‘good debt’ is real estate, and this is what they said about it:
“There are a variety of ways to make money in real estate. On the residential front, the simplest strategy often involves buying a house and living in it before selling it for a profit. Residential real estate can also be used to generate income, by taking in a boarder or renting out the entire residence.”
If I am already in debt, can I reduce it before buying a house?
Yes, you can reduce your debt by following these five steps:
- Run your credit: See exactly what is showing on your credit report. If there are items that should not be there (maybe something that belongs to someone with a similar name, or maybe something you fixed in the past that is still showing) call the company or send them a letter requesting that it be removed from your credit report.
- Contact the companies: If you have student loans and you are not taking care of them, you can create a repayment plan or a consolidation for the loan. You can also reduce credit card debt by contacting the companies and reducing the balance on your account, or improving your rates.
- Become aware of your FICO score: If you run your credit you will learn your credit score, which is a very important number when applying for a mortgage. As we mentioned last month, 54% of the loans closed in March had a FICO score between 600 and 750.
- Be aware of your debt-to-income (DTI) ratio: This is another important number when it comes to applying for a home loan. To calculate your DTI, you need your total monthly obligation (all your monthly payments) and then you need to divide that number by your total monthly income. The average DTI is around 36%, (with some organizations allowing it to be higher), but It should not exceed 45% according to Fannie Mae.
- Talk with a professional: Whether you talk to a real estate agent or a mortgage professional, they will be able to help you with these steps in order to get you on the right path toward buying a home.
There are five steps to reduce your debt. If you need help, contact a real estate professional that can help you to get on the path toward becoming a new homeowner.