When you take out a home loan, you are usually unable to receive extra funds to consolidate other debts. This is because your home loan is based on the home's value. If you would default on your loan, your lender must be able to recoup the money by selling the property. Under certain circumstances, however, you may be able to buy a home and consolidate.
Do Not Currently Own a Home
If you do not currently own a home, or do not have another large asset to use, consolidating your debt and buying a home at the same time is not possible unless you have an exceptionally large down payment. Cash out equity refinancing and home equity loans are both ways that homeowners can consolidate debt, but you need enough available equity to qualify. Available equity is the percentage of the home's value already paid for. For example, if you put $30,000 down on a $300,000 home loan, your lender may be willing to consolidate your $15,000 credit card debt.
Currently Own a Home
If you do currently own your home, you may be able to use the equity in your existing home to pay off your bills. Afterwards, you could sell your home and buy a new one if you wish. This method allows you to reduce the amount of revolving credit you are using, possibly increasing your credit score, which could help you get a lower interest rate when you buy your new home. There is an important caveat, however. You have to have enough remaining equity to pay realtor commissions and closing costs when you sell, as well as afford the costs associated with buying a new home.
Refinancing
Instead of trying to consolidate your debt at the same time as buying a home, you could always consolidate your debt after you make the purchase. This requires that you have enough equity to consolidate your debts and can be done in one of two ways: refinancing your mortgage or borrowing off the home's equity. In the former, you will have to pay closing costs all over again but you will typically pay less in interest than if you had borrowed off the equity in your home.
Equity Loans
An equity loan could take the form of a Home Equity Loan (HEL) or a Home Equity Line of Credit (HELOC). If you decide to borrow off the equity in your home, remember that you may pay a higher interest rate, but you can set the term for as short as you like, allowing you to pay off your consolidated debts in the matter of a few years rather than paying a mortgage over 15 or 30 years, which would include the consolidated debts. Moreover, you could end up paying less in interest, even with having a higher interest rate, because of the shorter pay off period.
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