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Should I Pay Off Debt or Save for a House?


What You Need To Know

  • If you have any high-interest debt, like credit cards or unsecured loans, it would probably be worthwhile to pay off those balances before saving to buy a house
  • Being debt-free can help you get approved for a mortgage, but it’s important to have enough cash to afford the cost of buying and owning a home
  • Most experts suggest saving enough to cover 3 – 6 months of expenses, while others advise saving 1% – 3% of the home’s value for emergencies


Life is all about weighing your options and making choices, especially when it comes to how to spend your hard-earned money.

The cost of renting a home increased by 12.3% from July 2021 to July 2022. And the median price to rent a one-bedroom apartment in the U.S. now stands at $1,450.[1] [2] Renting can often feel like paying someone else’s bills or throwing money away. This widespread perception is why many renters are eager to buy a home.[3]

If you’re thinking about buying a house, you already know you’ll need to save up some cash to cover the down payment and closing costs. But you may have debts you want to pay off to put you in the best possible position to qualify for a mortgage. But now you have a choice to make.

Which task should you prioritize?

Reading this will give you a better idea of the financial decisions you need to make to realize your dream of owning a home.

Take Inventory of Your Debt and Financial Situation

Before choosing between saving for a down payment or paying off debt, take inventory of your debt and evaluate your current financial situation. Do you have student loans or personal loans? How about credit card debt or medical debt?

If you have any high-interest debt, like credit cards or unsecured loans, it would probably be worthwhile to pay off those balances before saving to buy a house. But if you have loans with low interest rates and low balances, you may be better off saving to buy a house.

No matter which decision you land on, when it comes to debt, you should prioritize paying off higher-interest debt before lower-interest debt.

Paying off some or all your debt before applying for a mortgage will do much more than free up cash – it will lower your debt-to-income (DTI) ratio. When lenders review your mortgage application, they will calculate your DTI to confirm that you can afford your mortgage payments and payments for any other bills or loans.

Most home loans also have a minimum credit score requirement. If you don’t work on your credit before you apply for a mortgage, your loan options may be limited if you have a bad credit score.

You should also set money aside to pay for homeownership costs. Buying a home is a pricey proposition. The last thing you want to do is overextend your budget and risk becoming “house poor.”

Consider How Much You Can Afford

If you’re house hunting, you’ve probably asked yourself how much house you can afford. The price of a house can play a major role in helping you decide whether to pay off debt first or commit to saving for a home.

You’ll need to crunch a few numbers to figure out a comfortable price range to purchase a home and what your monthly payments would be. Your monthly mortgage payment will depend on the home’s purchase price, the type of loan you get and the size of your down payment.

For instance, you may be able to put 0% down with a U.S. Department of Agriculture (USDA) loan or a Department of Veterans Affairs (VA) loan, but it would result in a higher monthly payment. If you put down less than 20% on a conventional loan, you would pay private mortgage insurance (PMI).[4]

The asking price of a home isn’t the only cost you’ll have to save up for. Besides your mortgage, you’ll also pay property taxes, homeowners insurance and, potentially, PMI or mortgage insurance premiums (MIPs). You’ll also need additional funds in reserve to cover the cost of movers, home furnishing and home maintenance.

Compare Home Prices vs. Rent Hikes

Buying a home is a big financial undertaking, but one of the benefits of becoming a homeowner is building equity in your property over time. Renting, on the other hand, may cost less overall, but at the end of your lease, you’ll have nothing to show for the money you paid your landlord except receipts.

Renters, you’ll need to weigh the rising cost of renting a home against the increase in home prices and interest rates. During the pandemic, a strong seller’s market sent home prices soaring, pricing out many would-be home buyers. Those once aspiring home buyers turned to the rental market, causing rents to skyrocket.

Comparing home prices (including interest rates) against rent hikes can help calculate whether it would cost you more in the short term to buy a home versus continuing to rent. Don’t forget to include the long-term costs of homeownership in your estimates, like making repairs and saving up for emergency expenses.

Make Sure Your Emergency Fund Is Strong

While it may make sense to pay off high-interest debt before you start saving for a house, you should prioritize building a strong emergency fund while you pay down your most expensive loans.

As a homeowner, you never know when a costly catastrophe like a broken air conditioner or busted pipe might sneak up on you. The best plan for unexpected expenses is to have a plan. That’s where your emergency fund comes into play.

Tens of millions of Americans don’t have any money set aside for emergencies. And only 37% of Americans reported having at least 1 month’s worth of income saved for emergencies.[5]

There is no right or magic number for an emergency fund. Most experts suggest saving enough to cover 3 – 6 months of expenses, while others advise saving 1% – 3% of the home’s value for emergencies. According to one study, what you save for emergencies should be closer to $2,467.[6] However conservative these estimates may be, for many of us, they can still feel out of reach.

If you haven’t started building an emergency savings fund yet, there’s no time like the present. Consider opening a high-yield savings account. And if you can afford it, set up automatic deposits.

An emergency fund is something you should always be adding to. Get into the habit of regularly contributing when you aren’t using it and after you’ve dipped into it to pay for something.


was the average nonmortgage debt of a millennial in 2021.[7]


Making Your Own Call

There’s no right or wrong answer. A clear understanding of your goals, finances and debt should help guide you toward either paying off debt first or saving up for a house first. 

If you’re having trouble deciding which path to take or you want a second opinion, reach out to a financial advisor or mortgage lender for guidance.

You Can’t Have Your Cake and Eat It

Choosing between saving for a house and paying off debt can feel like the ultimate catch-22. You need to save money to buy a house, but you can’t save because you’re using your money to pay off debt.

Sometimes, you can’t have it all – but you can plan to have it all in a way that makes more sense for your goals. Whether you choose to pay off debt first or save money to buy a house, you should feel confident that you’re taking a step in the right direction.

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  3. You can check your credit report to find the number or use a free credit tool. You can also plug in your best guess.

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  1. National Apartment Association. “Year-Over-Year Rent Growth Continues.” Retrieved July 2022 from

  2. Zumper. “Zumper National Rent Report.” Retrieved July 2022 from

  3. The New York Times. “Homeownership Remains the American Dream, Despite Challenges.” Retrieved July 2022 from

  4. Consumer Financial Protection Bureau. “What is Private Mortgage Insurance?” Retrieved July 2022 from

  5. Consumer Financial Protection Bureau. “Emergency Savings and Financial Security.” Retrieved July 2022 from

  6. Social Science Research Network. “Rules of Thumb in Household Savings Decisions: Estimation Using Threshold Regression.” Retrieved July 2022 from

  7. Experian™. “Consumer Debt Continued to Grow in 2021 Amid Economic Uncertainty.” Retrieved July 2022 from


In Case You Missed It

  1. It may make sense to pay off high-interest debt before you start saving for a house, but you should prioritize building an emergency fund while you pay down your most expensive loans

  2. When paying off debt, prioritize paying off higher-interest loans first

  3. If you’re saving for a house, don’t forget to budget for expenses like movers, taxes and insurance, repairs and home maintenance

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