Q: When applying for a mortgage, should I use my savings to pay off other debts, or is it better to keep the debt and use my savings toward the down payment?

Answer by MICHAEL GOBIN, Wells Fargo Home Mortgage 
michael.gobin@wellsfargo.com    www.wfhm.com/michael-gobin

"It depends. If you CAN qualify WITH the current debt, keep your cash. If you don't qualify, and you have high monthly payments, like $100 on a $1,200 loan balance, it may then be better to pay that amount off, to qualify easier. This would reduce monthly debt by $100. If you put the same $1,200 amount as additional down payment instead, it would only reduce your mortgage payment by less than $6 per month. Keep in mind lenders look at the total of monthly payments, to determine a debt ratio; not the amount you owe, or have additionally to put down."


Answer by BOBBY GREEN, Bank of America Home Loans 
robert.l.green@bankofamerica.com    http://mortgage.bankofamerica.com/robertlgreen

"As long as your clients have enough money for the minimal down payment, I would use the money to pay off high interest credit cards 1st Since lending has become more restrictive on debt - to - income percentages (the max being 45% on conventional loans) I would do everything I could to lower my debt load.  Potentially you could afford a more expensive home.  Plus, the interest you pay on a house payment is tax deductible."


Answer by WESLEY SELLEW - Mortgage Network Inc.
wsellew@mortgagenetwork.com www.MNETCHARLESTON.com

"The answer to this question could be 2 different answers.

1. Buyers must have a minimum of 3.5% for a down payment (unless they are VA eligible). If the buyer only has just enough for the down payment, then they obviously need to keep that money in the bank to buy the house and work on paying off other debt each month with their extra savings.

2. If the buyer has 20% to put down and some other consumer debt, then I would advise only putting down 10-15% for the new house and use the other savings to pay off other debt. The reason to do this is because paying interest on consumer debt (credit cards, student loans, auto loans) has no benefit to the client. Paying mortgage interest does have a benefit come April every year when their taxes are filed because that interest can be used as a tax deduction."


Answer by HEIDI GRENCHIK, RBC Bank .

"Keep the money in your savings until you have met with your mortgage officer. With seller gift down payment gone on FHA new homebuyers are having to come up with their own 3.5% down unless they can get it as a gift from family, which some are doing and paying back in February when they get their $8000 tax credit. Sometimes even though they have debt it's small enough that they still qualify for the loan they want so they need that savings for down payment. Others, because their debt is so high they need to pay down something's before they can qualify for the loan they want.

The answer depends on each situation, so consult your mortgage loan officer before you pay a bunch of bills down that you might not have to and then you don't have the money for down payment."