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Pay off debt or save more for down payment?

Jul 18, 2011 | | Comments Comments Off

Dear Liz: Next year we will be shopping for a house in the $150,000-to-$200,000 range and hope to have $20,000 to $30,000 saved for a down payment. We have about $75,000 in student loans we are paying down. Would it be better to eliminate, say, one $3,000 student loan early or keep the $3,000 for a bigger down payment?

Answer: Eliminating such a small loan is unlikely to have a big effect on the size of the mortgage you’ll get, so you’re probably better off boosting your savings for your down payment. Don’t forget to save a bit extra so you have enough cash to cover closing costs and the inevitable repairs and maintenance required with homeownership.

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