Question: I’m 32 and live with my longtime girlfriend. We rent an apartment together, but are tired of our cheap landlord (the final straw was when it took him 5 days to fix a plumbing problem that involved raw sewage backing up) and loud tenants downstairs (we’ve had four tenants come and go in 2 years).
Anyhow, we both badly want to buy a house. We each earn about $30,000 annually. The problem is, we both have a some consumer debt. She has about $10,000 in credit card debt, I have about $3,000.
I do have $3,000 saved up, in the form of an IRA, which, I understand, I can use toward a first-time home purchase.
Someone said we may be better off buying a house in my name, since I have less debt (not to mention more savings). In general, I am more financially disciplined than her.
Anyhow, the main question is: Would I be better off paying off the $3,000 or so of credit card debt first, or should I concentrate more on accumulating savings for a house downpayment (or give equal priority to both)?
I would appreciate any advice, as I know little to nothing about getting a home loan.
Answer: You may have trouble qualifying for any mortgage loan, let alone one with a decent interest rate, with that much debt relative to your income. Paying down the credit card debt is always a good investment and, in your particular case, you may have to anyway in order to qualify for a loan. On a related note, your girlfriend (longtime or not) would be ill advised to help pay for a house that is in your name only. Get the credit situation cleared up and then you can buy the house jointly (added benefit – you’ll have much more income to help the loan qualification). There are special loan programs for first time buyers. I’ve heard that Norwest Mortgage (affiliated with Norwest Bank and now Wells Fargo) has done some nifty things (like 1.5% down, 3% interest to start topping out at 8.5% in 6 years) for first time buyers–the guy I heard about was a fast food store manager (I’m guessing income of about $25,000???). Set up an appointment with a mortgage banker to discuss loan programs for first time buyers in your income range and get their FREE advice. Also, check your credit report NOW so that you have time to clear up any errors. Their are three credit bureaus–TRW, Equifax, and Experian. In many states you are, by law, entitled to one free credit report a year.
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