Should I Pay Off Debt Before Buying a Home?

One of the first things buyers tell me is, “I’m going to pay off some debt before I apply for a mortgage.”
That’s a responsible thought—but it’s not always the right move.

In Lubbock’s 2025 lending environment, paying off debt can either improve your approval odds—or delay your purchase unnecessarily. The key is understanding which debts matter most.

Here’s how lenders actually evaluate it:
They look at your Debt-to-Income (DTI) ratio—how much of your monthly income goes toward debt payments (credit cards, car loans, student loans, etc.). Generally, a DTI below 43% keeps you in a safe approval range, though some programs allow higher.

Paying off high-interest, revolving credit (like credit cards) often helps your score immediately because it lowers your utilization rate. But paying off installment loans (like car notes or student loans) doesn’t always help as much—it might even reduce your available credit mix, which can ding your score slightly.

And here’s the curveball: draining your savings to pay down debt can actually hurt your approval. Lenders want to see cash reserves—money left after closing—for emergencies and stability.

So the smarter approach is balance:

• Pay down small revolving balances first.

• Keep at least two months’ worth of expenses in the bank.

• Don’t close credit cards once paid off—it can shorten your credit history.

• Avoid new debt completely (no “0% furniture financing” before closing!).

Before making big financial moves, talk to your lender first. I pair my clients with trusted local professionals who run what-if scenarios—showing exactly how paying off or keeping certain debts affects your approval and rate. Sometimes, leaving a balance makes more sense than wiping it clean.

The goal isn’t zero debt—it’s strategic debt.

Homeownership is about showing consistency and control, not perfection. If your income is steady and your debt is manageable, you may be ready to buy now—without waiting months to chase an arbitrary number.

In short: don’t guess, don’t Google—get professional eyes on your numbers. Because in Lubbock, a well-timed decision beats a well-intentioned delay every time.

— Insights from Tess Hernandez, Realtor | Reside Real Estate