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How to Manage Debt If You Need to Buy a Home in Less Than a Year

July 23, 2021
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How to Manage Debt If You Need to Buy a Home in Less Than a Year

Does it feel like getting a home loan is becoming more challenging? Lately, lenders have enhanced their scrutiny of mortgage applications. Even though it might be more challenging to get a home loan now than it was, say, five years ago, more rigorous rules have helped Americans get a better handle on their finances. Especially if you are looking to purchase a home in less than a year, you should get your finances in order. John Starke of Centaurus Financial shares how to do it.

Take Inventory of Your Debt

The first thing you need to do when trying to sort out your finances is to make a list of what you owe. This list should include creditors, interest rates, monthly payments, the total debt amount, and due dates. Having these figures on paper will help you see and focus on the entire picture and be more mindful of what you owe.

A debt reduction tool can ease this process — it will help you calculate your debt-to-income (DTI) ratio. This shows what percentage of your income goes toward paying your debts. A lower number means you're in a good place. Otherwise, you’re in trouble.

Limit Your Spending

If you have significant debt, it’s only common sense not to add to it. Create a spending plan by using a budget calculator. Don’t just live within your means but below them to save more money. This means eating out less, avoiding unnecessary travel, etc. Get creative and find ways to have fun while spending less money.

Increase Your Earnings

If your income is not up to par with your area’s cost of living, or you do not have sufficient money at the end of the month, it's time to find ways to increase your income, which also means more money you can pay toward your debt. Discuss with your boss the possibility of a raise, look for a new job, or supplement your income with freelance or part-time work. Remember that even an additional $500 will not put a big dent in your debt but can take you a step closer to your goal of buying a home.

Consolidate Your Debt

One of the best ways to get rid of debt is consolidation loans. Essentially, you merge all your debt into one loan, usually at a lower interest rate. This is advantageous because you can make one low monthly payment instead of several.

While debt consolidation loans are an excellent solution, they can also be a slippery slope if you're not on your guard. When consolidating what you owe, you free up available credit, which means that you may be tempted to go on a spending spree again. So you have to remember to be very disciplined, use your credit cards with care, and not wrack up even more debt.

Do Your Research

After you've sorted out your finances (even partially), it's time to look into the homebuying process. Determine how much house you can afford. You can do so by exploring the local market you want to purchase and live in. You’ll want to find out how much homes are selling for on average, how long they’re staying on the market, and other factors — in Mechanicsville, for instance, homes sell for $286K but only stay seven days on the market on average. Of course, only look for homes within your means. Moreover, figure out how much down payment you need to set aside.

In a Nutshell

It's easy to find yourself deep in debt, and whatever the reason or amount, it can be intimidating. The good news is that debt management in a short period is possible. Consider these tips and you’ll be handed the keys to your own home in no time.


Centaurus Financial can assist you in a wide range of financial services and deliver wealth management solutions. Learn more here or call John for a consultation.