Ep. 305 – Debt Management: Homebuying 101 – Step 4 

Discover why debt management is key to buying a home in 2025’s economy. This episode demolishes common misconceptions about debt and homebuying, revealing how even those with significant student loans or credit card debt can still achieve homeownership.

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“Your gross debt doesn’t mean jack cheese for buying a home… Monthly payments, that’s all that matters.” – David Sidoni

Episode Highlights

• Is it possible to buy a home while still carrying student loan debt? How a doctor with $300,000 in student loans successfully purchased their first home
• What if your monthly rent payment could become a mortgage payment instead? Understanding rent replacement strategy in today’s economy
• Could you be working too hard to eliminate debt? Why focusing solely on debt reduction might cost you more in the long run
• Is your total debt really holding you back? How lenders actually view debt when approving mortgages
• What’s the difference between good debt, bad debt, and workable debt? A new framework for debt management while saving for a home
• Have you been misled by outdated advice? Why traditional “debt-free first” approaches may not work in 2025’s market
• Could you balance debt payoff and down payment savings simultaneously? A modern approach to the “Big Three” – credit, debt, and savings

Referenced Episodes

• Episode 167: From High Debt to Homeowner in 10 Weeks
• Episode 186: Buying with $300k in Student Loans
• Episode 187: A PhD’s Path to Homeownership
• Episode 251: Your Custom Home Buying Plan
• Episode 262: Housing Affordability Crisis Explained
• Episode 56: Creative Financing Solutions

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Listen to the podcast here

Debt Management: Homebuying 101 – Step 4

Understanding The Big Three: Credit, Debt, And Savings

Welcome to step four, homies, the second step of the big three credit score, debt, and savings. Debt is the middle child and much like many middle children, it’s probably the most misunderstood and misconstrued of the big three. Let’s unravel the mystery.

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I’m dropping the ten must-do steps for every first-time home buyer, and we are on step four, debt. I’m going to cover all the basics about debt from the beginning, the very early starter pieces you need to know all the way into the more advanced steps that are going to help put you way ahead of the competition when you are trying to buy a home.

I’m going to cover things like how does debt affect your ability to buy a home, and how do you balance the impossible, reducing your debt while building up your savings at the same time? I’m going to talk about big payoffs. When you get a big chunk of money, what do you do with that, with your debt? We are going to talk about revolving debt versus installment debt. Talking also about gross debt versus monthly debt.

Talking about credit card consolidations for your debt, and we’ll get into calculating and comprehending your Debt To Income ratio, your DTI, and we will take a chunk outta student loan debt. It is not the hindrance that most people believe when it comes to buying a home. At the very end I’m going to give you a secret little bonus.

The Truth About Student Loans And Homeownership

To start, yes, debt’s a thing. For Americans and people in North America, they suck at saving money, but they are good at getting into debt. The average American in 2024 who didn’t have a mortgage, carried $23,000 in debt, and that’s not including the student loan debts. That’ll be the first thing I want to address. Student loan debt has a completely false reputation for being something that stops renters from ever being able to buy a home. We have had hundreds of clients buy a home with student debt. If you are stuck there with $23,000 of other revolving debt or other types of debt, can you still buy a home? Yes. You do not need to zero out your debt to buy a home. That is a big fat lie.

In 2025, with rents rising at double the usual pace that they have for the decades before this, and in some areas it’s way more than doubling. It’s tripling, quadrupling and whatever comes after quadrupling. When you examine the rent replacement calculations, owning versus buying, for most of you buying a home, if you can still carry the debt, will not be mathematically a better fiscal option for you. It may be your only option to get in the game. In Episode 262, I broke down the housing affordability crisis, even though I can’t say it.

It’s all over North America, the United States, and Canada, and one of the main things that I addressed was the depressing new thought that’s getting louder especially among Gen Zs and Millennials. In this 2025 economy, those generations think they might have to be renters forever. Housing affordability is a thing. More and more people have been complaining that things aren’t like they used to be and they think it’s impossible for them to ever buy a home.

There’s one big difference between this economy and the boomers of the good old days back in the 1900s. Rents in the 2000s have increased higher and faster than they ever have historically. What this does is it eats away at young adults’ ability to save for a home. We had to create a new era of home buying. We have created a new program, platform style, whatever.

It’s a different way to do what has been done differently before. This new way of buying a home. It has a new understanding of how to manage your debt while taking on a home purchase. The first thing to know is you do not have to be debt free to buy a home. You don’t even have to be nearly debt free. Fact. Second, make sure you are changing your mindset because when you realize that for most of you the math is far more in your favor, if you work your credit score, your debt and your savings simultaneously instead of one piece at a time, you’ll start to see the picture of you getting a home earlier and dumping that rent as soon as possible. If you focus on reducing your debt first, you are going to miss out on some major benefits, especially as home prices continue to increase, you’ll eventually end up having to pay a lot more for your home, while you are doing things one at a time.

Here’s a snippet from an interview with some readers that had to bridge step 3 credit scores to step 4 debt. This is from Episode 167. It’s Christina and Sean. If you are a beginner and you are someone who thinks that there’s no way that you can buy a home, you are in the same boat as Christina and Sean. Listen to them. Nobody in their family had ever bought a home. They wanted to be the first. They got started by doing a whole lot of debt reduction work on their own.

They figured that’s what they had to do first, and then with some unfortunately misguided and outdated advice that ended up slowing down their home buying process by years when if they’d been working with the right plan, working on their credit scores, their debt and their savings simultaneously, they could have purchased a home much earlier.

By the time they reached out to me, they discovered that homes were close to 25% to 35% more expensive than when they first had this idea, and it was a bummer for them to discover that if they’d started with correct guidance about debt, they could have pulled this off way earlier. I understand that feels like it sucks for them, but this was a mistake that they figured out and they decided that’s where we are. Time to move forward, and there’s a happy ending to this one.

They did buy a home and when they did, they doubled the square footage from the apartment they were living in for only $400 more in their monthly payment. It only took them $18,000 total in their down payment and closing costs. As they had a happy ending, they are fine that you can learn from them and how they attacked their debt incorrectly at first, while they were ignoring their credit.

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I know that you guys reached out to me in July, 2022. Tell everybody when you close on a home.

September 29th, 2022.

You reached out to me on July 7th, on July 6th, as you said, didn’t make the call yet, didn’t know for sure, and August, September, that’s 10 weeks.

Yes.

Tell us. What was your story? You guys have good jobs and were prepared and had a lot of money and perfect credit.

Far from it. Do you want to start from the beginning when I started thinking about buying a house?

Give me the details.

How One Couple Overcame Debt To Buy A Home

Our credit was in the toilet in the beginning of 2022, and the story starts in late 2019. I picked up a book called Bad with Money from Gaby Dunn. That was the first financial book I picked up because it didn’t look like it was crunching numbers. It looked fun, it looked relatable. I read that and I was like, “I’m bad with money. My husband’s bad with money. Let’s google some other financial stuff.” That led me to Dave Ramsey, which I have heard you talk about. I would say beginning, right before the pandemic, we started the budgeting Dave Ramsey principles, getting out of debt, and we had no consumer debt. We had no car loans, we had no credit cards. It was a bunch of medical debt.

Using his principles, we ended up starting in March of 2022. We saved up a bunch of money and we paid off all our debt, but then realized when we looked at our credit, our credit was still in the toilet. All the delinquencies came off, but we had no lines of credit. Our goal was always to buy a house and we were renting at the time. The rent was pretty steep for a little house. I got on the internet and I Googled how to buy a home, and thank God your show is about how to buy a home.

Reading episodes. Some were about the market and I didn’t feel like I was there yet, but then I started scrolling because you had so many episodes and I saw credit. I realized your show, you didn’t have to read in order. I happened to pick one about credit and you had a lady there. I don’t remember her name, but you had a lady talking about credit.

Genie The Credit Genie.

I realized that we had such bad credit because we didn’t establish any credit, and the credit we did establish when we were eighteen, we didn’t know how to use. You guys talked a little bit about secured credit cards to start off with. We went out and we did talk to his brother-in-law, which is phenomenal. His credit score is amazing.

He did agree with everybody, like you need to do this. We got three secured credit cards, 1 for me, 1 for him, and 1 that we were both on. This was in March of 2022. By June of 2022, we both went from five 50 credit scores to 700 by putting $25 on each card a month for gas and paying it off about eighteen months we worked, Dave Ramsey saved up enough money, and when we had the total amount in March of 2022, in one day, I called everybody negotiated, paid everything off.

When did you go up from 500 to 700?

How Small Credit Card Payments Improved Their Score

In March we found you. By April, we applied for the secured cards and got them in April, and we did one payment on each in May and one payment on each in June, and we went from 550s to 700s.

That’s why I wanted to interrupt you. I have it now. Dave Ramsey 2019. Yes. You saved money. Yes. You reduced your debt, your credit score stayed in the toilet the whole time. I don’t want to rag on Dave. I do want to uplift that you had such possibilities.

That was the piece that was missing with Dave Ramsey when we finally broke even, it was going to be years before we saved the down payment. We had enough for a decent down payment, but then with the whole COVID thing, you needed all kinds of gaps like take it or leave it stuff that we knew it would take forever to get 20% of that market. That led us to you.

It was ten weeks, but you hadn’t saved because if you found us in March, and then, in a few months, your credit scores were up, and then July we hooked you up. How much did you have to save in that time? I’m guessing it wasn’t 20%.

No. We put down 5%, and then, we were lucky enough, I’m in nursing school for my RN degree. We had saved up before I started because we knew I was going to stop working at my job and Sean would be the only one working. That was supposed to be our little nest egg, to get through until I started working as a nurse, but our rent was going to go up. She wanted to sell the property, our landlord. We were going to be putting out so much more money that we said, “Let me reach out to this guy Dave Sidoni.”

I’m like, “My email is going to go in a black hole and it’s never going to get anywhere. You were so quick to respond to me, and I ran out to my husband’s office and I’m like, “He responded to me. This is real.” We are open to talking about it. Our medical debt was around $12,000. We ended up saving around $25,000. We did have a good nest egg after we paid off the debt from those eighteen months of working Dave Ramsey’s plan.

When I went into it for the house, they didn’t even want to hear about me being in school or potential jobs or anything. They are like, “John’s income is good,” and whatever you make. This was the best part. They are like when you start working and you have a dual income because the rates were higher, they are like, “My mortgage broker was like, ‘Give it two years. They are going to come down and then you are going to refinance with a dual income. You are going to have a lower rate and it’s going to work to your benefit.’” That’s why they based it solely on his so that yes, the payment was a little higher but it was in our budget. It was in our budget that we didn’t even realize until I read your show about how much you can flex your budget.

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Straight up. I love those two. I teared up at the end of the interview because I was so genuinely thrilled that they found their happy ending. If you want to read that plus a whole bunch of other tips from their personal story of buying a home, that’s all there in Episode 167. What we learned is that if they’d gotten the right guidance two years earlier, they would have learned that we are in a new economy and they would have attacked getting their debt down in a much different fashion.

They would have learned that debt is not an evil monster that must be completely destroyed before you even think about taking the next step. That’s the big key is thinking about all of the big three simultaneously. If they found that they would have created a rent replacement strategy and been able to buy a home earlier, 25% to 35% less than the price they did end up buying a home.

As each and every one of you is at different places on that shoot and ladder board from Episode 164, we all don’t start at the start. We all start somewhere on the board. I can’t, and no financial guru should give everybody the same one-size-fits-all step-by-step program to reduce your debt because what that’s missing is, what if your main thing to reduce your debt is so that you can buy a home so that you don’t have to pay the high rents and you can use the math to make more money for you and your family.

If you follow some guru’s one-size-fits-all program, you are going to miss out on your own unique possibilities. Now for Christina and Sean, if they’d had the proper guidance years earlier, they could have discovered a way to purchase a home with that $12,000 of medical debt and with the no credit that they had, and they’d even be able to do it with one income now.

It would have taken them a couple months instead of a couple years to get it all together, and then they could have found whatever option they had to buy a home and they could have stopped renting much earlier, bought a home for a much cheaper price and they would be sitting on a different pile of equity. No worries, they still had a happy ending that had us all in tears. That’s another lesson for you in these ten steps. For many of you, the biggest discovery will be that you’ve been given misinformation and that has created these perceived negatives, things that you assume are true and they are stopping you, especially and including your debt, like Christina and Sean. Don’t let the fact that you could have done this earlier, bum you out. Let it fuel your fire to proceed with new confidence now.

The bogus myths, they create unjustified fear about everything. About student loans, about medical debt, about your income, whatever you need for your job or your credit score. What I like to tell first-time home buyers is it’s okay. You don’t know what you don’t know. When you are learning something new. Ignorance isn’t a negative word. It’s got such a gross connotation in our language, but that’s not the true meaning of ignorance. It means you don’t know.

I know sometimes, especially because of that weird stigma. It sounds weird but embrace your ignorance as a chance to grow and learn. When it comes to debt. Do not let the ignorance that you might have about how debt works with buying a home. Don’t let that stop you from becoming enlightened instead of afraid. Let’s use this real life couple that bought a home and talk about debt and home buying in the new economy.

Those financial gurus preach complete debt elimination before buying a home. Unfortunately, this approach is old school and it needs some serious updating. In our economic climate, we have got inflation, high rents, crazy government monetary policies. Understanding that there are different types of debt, that’s crucial to your home ownership.

We live in a capitalistic culture, but what’s crazy is most people don’t understand capital and how it works. Capital is your tool to overcome debt. Unfortunately, debt is everywhere. I guarantee that 95% of everyone reading this has some level of debt. The good news is it’s not going to stop you from buying a home when you approach it the right way. In this new economy, now more than ever, because you are paying those high rents, it’s crucial. You understand the difference between good debt, bad debt, and workable debt.

Bad debt. That’s your rent payments that disappear with no return. Good debt is like a mortgage that builds equity into an appreciating asset, and then workable debt, that’s your revolving and installment debt that can be managed. When you are working with the three types of debt, the key concept is viewing home ownership as a rent replacement strategy and then figuring out how you can reallocate your largest monthly expense, your rent, into an appreciating asset.

Instead of paying rent, the bad debt, you can direct that monthly money into mortgage payments, good debt, and build your equity. The strategy works even if you have some existing debt as long as it’s properly managed. Understanding the three types of debt is the modern way and perhaps the only way that most people can buy a home in the 21st century.

The rent payment, bad debt, on your balance sheet disappears. Your house payment and your home loan are positive, good debt, because you are paying yourself into that appreciating asset from the expense you were already paying into your bad debt, your rent. It’s a replacement strategy. You are revolving an installment debt. That’s the part we are working with that’s workable debt.

Manageable debt. Like Christina and Sean, I’m positive that for most of you, the math will show you if you punch it all out with a professional guide that a strategy when you fully comprehend how to manage and use these three types of debt, utilizing your rent as a mortgage payment instead will be a better financial decision and a faster path to financial independence through home ownership.

Here’s some simple math, consider this. After five years of renting, you would walk away with your security deposit of a couple of thousand bucks, but after five years of home ownership, you have so many options, you are going to be sitting there with equity and you can use that to move up with your home. Keep that home, pull some out and buy another home.

Your present-day debt is not a hindrance and should not stop you from reaching out to a professional and starting your plan. It should encourage you even more to seek guidance and explore all the possibilities available to you. Your debts shouldn’t hold you back.

You could use it to travel for career changes or any other new goals you have in life. If after five years you haven’t saved any money because you own that home, and you are putting everything into it, and you are still living paycheck to paycheck. As a homeowner, you’ll still have built wealth through that equity, or you can rent for five years and walk away with a couple of thousand dollars security deposit, like I did. Let me say this one more time. In the real world, home ownership is a rent replacement strategy.

Getting the nitty-gritty on debt, managing debt to buy a home is a trifecta of awareness, reduction, and then step five, saving. You have to save for your down payment at your closing costs, but you have to do that at the same time that you are working on your debt. Jumping into figuring that all out on your own can be super overwhelming. Many people opt to tackle the big three credit score debt and savings one at a time.

Perhaps when you hear the one at a time advice, maybe it sounds more digestible and easier to handle, but the truth is it can very much hurt your home buying power. I know you might hear differently from other sources. I am very aware of the fact that there are plenty of financial gurus out there and they’re all giving you some form of one at a time simple baby steps advice, but I ask you this, in this world, are they giving you twenty-year-old advice?

How many of them have success stories from first-time home buyers that they have helped in the past few years? How many of them are offering you a custom solution instead of a one-size-fits-all solution? Which, most of the time, are those one-size-fits-all solutions. They happen to be tied to them selling a book, workshop, or a program, and how many of those other gurus out there are focusing on the one aspect of this part of your financial life, trying to buy a home in 2025.

Here in 2025, let’s change that focus from making this scene impossible, which leads to many young people complaining about how much easier it was in the past. Instead, let’s investigate the present day solution so you can ensure a more stable future for yourself. Your present day debt is not a hindrance and should not stop you from reaching out to a pro and starting your plan.

In fact, it should encourage you even more to get a guide and help reveal all the possibilities to you that shouldn’t stop you. Debts don’t need to stop you. As we learn from Christina and Sean, if you try to wipe away debt completely before you talk to a pro who’s living in this world with new financial tactics, you might end up missing some big options and big opportunities, especially in an appreciating market because the less time you are renting, the quicker you can start to use that large monthly rental payment to gain larger amounts of wealth.

Here’s the thing with working on your debt. What’s the worst that can happen when you are working with a professional real estate support team to try to figure out if you can buy a home with some of your debt? What’s the worst thing that can happen? You find out that all of your fears were right and your debt is too high. Now you have to create a new plan to reduce some of your debt first before you can buy a home.

Is that the worst thing that can happen? Cool. You already think that why not talk to a unicorn and get some real caring guidance, and some actual action steps, and maybe some answers. Maybe you find out that you can do it now, or maybe you find out here’s some simple steps you can do to speed up the timeline to get your advice on your personal rent replacement strategy and not a one-size-fits-all.

For many of you, and I know that it’s many of you because I have been doing this every day since 2019, and I see the numbers. For many of you, you’ll find out that your fears are incorrect and you are a lot closer than you think. Say it with me, “Rent replacement strategy. Without that, you are fighting an uphill battle on an icy hill and you are wearing greased socks.” I’m going to give you some more practical tips on debt, but now let’s get some good advice from another success story. This is Dr. Kendall. She’s got a PhD in Psychology. This is what she learned trying to handle her own debt and savings on her own.

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How Budgeting And Balancing Debt Helps You Save

The biggest thing that hit me was that I was trying to do somebody else’s job. I was trying to figure out all of this information by myself using all of those online calculators, Googling article after article, listening to podcasts, and at the end of the day, one of the simplest moments was reaching out to a lender, giving hypotheticals and getting some answers. I felt pretty silly at the end, realizing how much time I had spent when I could have asked somebody for some help.

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Even a PhD couldn’t resist diving into the matrix of the internet to figure out what’s the best way to do this all on her own, only to discover that she could have avoided a lot of stress and headaches by hiring the right team willing to help her with the planning. Bypass, doing it on your own and don’t go to Dave Ramsey or any of those other crusty old financial guru dudes who are spewing garbage to you. Old school dinosaur stuff and they are even charging you for their outdated advice.

Especially in 2025 and moving forward into 2026 and 2027, you are going to need a new insider plan to beat this rigged system when it comes to buying a home. You are going to need to learn to work with your debt. The best way to do that, is to hire a team. They are going to advise you on the tricky game and they are going to help you do this. Reduce your debt while also saving for your down payment. That’s two B words, Budget and Balance.

The first B word, Budget, is nasty to some of you. You hate it. The problem with the word budget is that it always feels like you are focusing on depriving yourself. I heard a great financial guru that I liked say, think about it this way. When you are thinking about a diet, dieting is all the foods you can’t eat. It deprives you, but if you do a lifestyle choice change, that means maybe you get to do more things or you do things differently as opposed to thinking of what you can’t do. In the case of buying a home, you get to exit your tenant life and you get to gain full control of your living situation. It’s amazing.

To do a budget and balance at the same time, you need clear numbers, action steps. You need to know what your goal numbers are and your target numbers are. You set those with your team. You can use budgeting to help you make conscious decisions instead of guessing and throwing money away whenever you can. You can write it all out and live guilt free, and that’ll give yourself these cool little permission moments.

I love these. Give yourself little predetermined mini rewards along the way and permission to spend that money because you’ve already set aside that moment of celebration for yourself. A real budget is a permission slip for living. It’s not depriving you of the life that you want. Understanding what debt you have is your workable debt, your manageable debt. That can mean that you can balance paying down that debt to the target goals that you’ve selected while also putting some of your money into the savings that you are going to need.

This is going to be personal for each of you and it needs to be worked out by you on your very own personal spreadsheet. I said the word spreadsheet. I know for some of you that gets you happy and excited and for others of you might have peed a little bit. It can be scary, I understand. When all the numbers are laid out, the balancing act of working both at the same time. Paying off the debt while you are building your savings, it can be done with the right team. You can create your own custom formula and you can even put it into a simple spreadsheet.

If you love spreadsheets, fine. Make it crazy complex if that’s your thing. All the details on how to do this are in the last lease ever episode. That’s Episode 251. It’s going to help you create your own personalized, custom bespoke solution. That way you can simultaneously work on all the things in the big three at the same time.

The concept is simple. You can shave years of wasted rent time and you could be using that to grow your wealth instead. One of the ways to get started is to do your math. How many years would it take you if you focused on working on your debt? How much rent would you pay at that time? Once you realize that you could get approved to buy a home, when you are keeping some of that debt, that’s when you work a budget to get to whatever your debt number needs to be and the balance so you can build up the savings at the same time with your own personal numbers. Given from the advice of a pro that understands what you can do, what debt you can carry, and you’ll find your own custom formula, pay it down while simultaneously shaving years off that old one at a time plan.

Here is an even more basic way to help you begin this more efficient way to move forward. Even if you are swimming in debt by automating just $25 a week, or I don’t care, $25 a month. Automate that being taken out and putting into a savings account. Your down payment savings account. If you are doing that while you are working on the debt, you are also going to get yourself into the habit of seeing the big picture. Psychologically alone, this is massively helpful. You can simultaneously watch the debt go down while you are watching the savings go up, which is so much more fulfilling than feeling like you can’t even begin to start the savings until you finish getting rid of the debt. Let’s focus on how to be a badass and do that. Badass, another great B word. Back to the doctor, Kendall.

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Your very first communication with me, you talked to me about something. This is a little deeper level. If you guys are brand new starting, this is important for you to know. You have to do three things when you are getting ready. You have to work on your credit score, regardless, I’m not saying you can’t buy if you have a low credit score, but you get better stuff, better rates, better loan programs, and then you have to work on your savings and your debt. That’s the balancing act. You asked me about it. Tell us about your journey of trying to save for something while trying to reduce a debt at the same time.

I tried to figure out. There are certain numbers, and I think you hear something like 30% debt to income or 30% seems to stick out to me. I had this idea that I needed to be in that realm but also have a down payment. One of the things that we tried to do was, and you say this all the time, and this is probably a point I will emphasize, but know your area. We had done a lot of research on where we want to be and what is typical of those homes. What do they cost for an entry-level that would work for our needs?

My husband and I both work from home. We have a son, so we had to try to figure out within the area what’s a reasonable starting point. From there, work our way backwards and think, “If you need the 3% down, if you need the 1% to 2% closing costs, what does that equate to if you need a $500,000 home? That gave us that savings goal that we were trying to then work our way backwards.

If we want to do this in this many months, how much money do we need to be saving a month to get us there? I felt a little silly later with some of the debt stuff. One, when talking with some of my unicorn team, I’m not saying this is great, but one of the things that was told to me is that homes are expensive now. They recognize that not everybody can stay in some of that preferred debt-to-income ratio. They were saying that they will go a lot higher than was traditionally accepted. Now knowing what I know, I may have emphasized a little bit more that the down payment savings goal first, because they do let you get away with a little bit more than that 30% for debt to income. You can correct me if I’m wrong. That was some of the information I had been given.

Perfect information. This is deep for those of you who are into it. What she’s talking about is you are going to hear a whole lot of generalizations and you are right, Kendall. It’s 30%. The DTI, you have a front end and a backend, all these real estate terms, but with an FHA, and this is the math I have been trying to explain to people with an FHA and sometimes even with a conventional, you can get up to 40% to 48% DTI. The articles all say people are paying half their money to pay their rent, and how bad that is, and how that’s ruining our economy.

Today’s economy is different from that of your parents or grandparents. If you rely on outdated tactics to save for a home, you may end up paying rent until you start collecting Social Security.

Understood, but if we can’t beat the man, then you figure out, “If I’m going to be spending 40% for my rent anyway, what do I need to save? 3% down, 5% down plus 1% to 3% for closing costs,” and then you go and do that at a high DTI Debt To Income ratio, 40%. You still can get a loan, but now you are paying yourself instead of your landlord. What did you run into with your debts? Were you looking at manageable monthly payments but large gross? I say that because that’s usually student loans.

We had student loans. There were also things like some car loans. There were some credit cards that, when you are in a grad program that pays you pennies, if something breaks on your car, it’s going on a credit card. That’s survival in that time period. There were some credit lines utilization that was higher than would be ideal, so we were working with a few different types of debt.

We were trying to do a little bit of that snowball method where you are trying to pay extra towards one and then roll it into another. One of the things that had hung me up a little was how it was impacting my credit score. That idea of if you look at your credit score and it breaks down all the different factors that are negatively or positively impacting it. From mine, the thing that was a ding against it was that credit utilization was a little too high. They want 30% as well, if I remember correctly, in order to have it in that green, and correct me if I’m wrong there.

You are right. One of the hardest things about the snowball effect, because I believe in the snowball effect, is that the immediate credit scores don’t jump right away. If you have three cards that are all at 70% usage and you are knocking one down as opposed to knocking them all down, you can go from 70% to 60% and then if you get them all below 50%, your credit score will go up. That’s where you have to understand your timing. There’s a better way to pay them off long term. If you snowball one down, your utilization still stinks because you got 2 at 70%, but then you are going to be able to roll into a higher payment and get them down quicker.

I want to say it was on one of your episodes, so if I am misquoting you, cut me off, stop me. As we were getting a little bit closer, I was thinking, “I don’t know how else to do this. I can’t throw any extra money at the debt. I’m still trying to get up to the down payment that I need.” There was an episode that talked about asking for a credit line increase. It was shockingly simple. They want you to owe them more money. I logged into my credit cards and I said, “Can I have a credit line increase?” They said, “Confirmed right away. Here you go,” and all of a sudden my credit score boosted right away because I didn’t pay down more, but it looked like I wasn’t using as much of my credit anymore.

Your credit usage jumps up.

One thing that hit us when we were renting was that as you watch people own their homes, and you realize every year that you don’t own their stuff locked in and yours isn’t. I don’t mean to say that yours never changes. When you own a home, your taxes can increase. You might have these random years. We have very expensive repairs that are needed.

What we saw was we have family members who have been locked into their mortgages, who now have $1,400 mortgages and a family member with an $800 mortgage. Our friends got locked into a mortgage where then our rent every year went up $300, $400. What we watched was that they had the stability and expectation of their budget, ours changed every year. When you think about that, even in a year or two, what a difference that makes. That was for us realizing the sooner you get it, and the better you can lock in some of that.

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Why The Old-School Debt Advice Needs Updating

Debt is relative and you have to use good, bad, and workable debt, manageable debt to create your own revenue replacement strategy. Here’s a cool trick while you are working on that. Did you know that before you pay down debt, your team can use credit score simulators? Those will show you how much your score will improve when you pay debts down.

Different payoff amounts, different changes in it. It’ll show you the different scores depending on what you plug into the simulator. Remember all of the big three work together. Another tip for debt, what do you do when you get what I call a windfall like a chunk of money plopped in your lap like a holiday bonus or a tax refund or some other sudden influx of cash? The best thing you can do, which might sound illogical to anyone who doesn’t know how to play the balancing game, is to call your lender and run the scenarios for what to do with that in regards to a home loan, not just the single aspect of your debt.

Here’s an example and spoiler alert, the only right answer, even as this example is your right answer, depending on your own personal situation. Imagine that you had $3,000 left in credit card debt and you are also $5,000 short of the savings that you need for your down payment. Suddenly, I don’t know where you get a $5,000 bonus. Now most people think, “What do you do with that?”

Pay off the debt. That boosts your credit score, and the higher credit score you get, the better loan rate. Here’s a way to think of it. What if you are already approved for a home loan at a slightly higher rate while you are carrying that $3,000 in debt? The balancing act is if you put that $5,000 bonus, you put it into your savings, now you have enough to go home shopping. Now it might be at a slightly higher rate, but is that the best thing for you?

The correct thing to do depends. People hate that, but that’s the answer. It depends. It depends on you and your personal situation. Would buying a home sooner rather than later benefit you for other reasons? Does the timing of a quicker purchase save you big money and rent? Have home prices been going up, so getting in sooner might be better?

Is the $3,000 in debt that you have remaining, where is that on your available credit? Is it on a credit card with a $10,000 limit, a $5,000 limit? Is it on a card with a $20,000 limit? It won’t be affecting your credit score at all? Have you used that credit score simulator to see what happens if you pay down part of the $3,000 debt, or all of it, and then what would happen with the savings money that you have left? How long would it take you to save up another $3,000 if you used $3,000 and $5,000 all on the debt? These are some of the questions that you need to ask with the team, with the ultimate goal. What happens to our home approval, and when can we go ahead and act on that?

The possibilities are endless, but only if you’ve done the prep work with the team. First, you need to work everything with a unicorn realtor to help you find the price point that works for you and your goals, and then you get a recommendation to a few unicorn lenders. You find the ones that you are comfortable with, and you work the big three, and that unicorn lender will constantly be running your numbers as everything changes in your credit score, your debt, and your savings because you are working together in a plan as opposed to you doing it all on your own.

A big payout, it can be used in several different ways. It could simultaneously improve all aspects of the big three or it could go towards one big goal that you and your team have figured out is the most important thing for you. Ultimately, you want to have multiple different people with the same goal in mind and different levels of expertise working together to put you in the best position to have you start looking at a home sooner rather than later.

The next key component to grasping how debt can affect your ability to buy a home is understanding the difference between revolving debt and installment debt. Revolving debt, that’s your typical credit card debt with a limit and then a minimum monthly payment. This counts more against your credit score because it can grow forever if you pay the minimum, and you always have the ability to draw on it again. That means it has no determined end date.

On the other side, installment loans, things with a fixed end date like your personal loans, your car loans, or your student loans, those count less against your credit score. This next one is something that people get wrong a lot. One of the elements of understanding how your debt affects your home buying power is understanding the difference between looking at your gross debt, your overall total, versus your monthly debt. That gross debt, your total overall amount, creates so much unnecessary fear. I can’t even believe it.

Soak this into your fragile psyche that has been beaten down with misinformation. Your total, your gross debt doesn’t mean jack cheese for buying a home. Your total debt is of no concern to me, the mortgage broker or the bank that’s going to approve you for your home loan. Total debt means skadoosh. You can have $200,000 in student debt, $20,000 in credit card debt and owe $25,000 on your car.

When you apply for a home mortgage, ain’t nobody is looking at the total number that you owe monthly. The monthly payments, that’s all that matters. Now I hope that makes you feel a lot less tense and afraid because monthly, not gross, that’s all that matters. Here’s a quick explanation with my best friend math. If you make $8,000 a month, you get a $200,000 student loan. It could be $150 to $1,000 for your monthly payment depending on your type of loan. We’ll go high, we’ll say it’s a $750 a month payment. The $20,000 in credit cards might be $500 a month in payments, and the $25,000 you owe on your car, say that’s $350 a month.

The bank doesn’t look at your gross, they look at the monthly expenses out. That’s $750 for the student loans, $500 for the credit cards, $350 for your credit card payment. Your monthly debt is $1,600. Now you make $8,000 a month. $1,600, that’s 20% of the $8,000 you bring in. That means when you are going for a mortgage with some loans, you can go up to 48% in your total monthly debt numbers.

Now your debt is at 20% of your monthly income. Not your gross. Your monthly. That leaves you another 28% left for a mortgage payment. 28% of $8,000 means even though you have that gigantic gross debt, you qualify for a mortgage of $2,240 a month. That full 28% of $8,000. This is how they calculate your debt. It’s what we call the debt to income ratio, and this is how they determine what loan amount you are approved for. Please stop worrying about gross debt. It’s all monthly. Let’s know what the doctor found out after she put in tons of hard work on her own, stressing over her debt and potential loan approval. Let’s see what the PhD discovered when she got a professional opinion. Back to Dr. Kendall.

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Understanding Your Debt-To-Income Ratio For A Mortgage

Tell me what it looked like for you where you were trying to balance paying down your debt and bill your down payment. You had a chunk of money every month, or what were you doing with it?

We try to stick to a budget. We do the whole Excel sheet where you’ve got the month broken in two. I knew what bills were coming up. Every time I was paid, I would look at how much money I typically need for this section of the month, whatever was left over was sent into the savings account. I had pre-setup ahead of time, just extra payments going towards the credit card so that I didn’t have to remember to log in and make those extra payments.

I decided ahead of time when I looked at how much debt I have. I want to buy a home in a year and a half. I tried to figure out, “I need to shave off at least this much amount on the debt, and then using credit card calculators, tried to figure out what’s the best way to do that, factoring in interest.” It was a little bit of math upfront to try to figure that out, but then I set up those odd payments, so they were automatically pulled out and then whatever was left over in the account got sent straight to savings for the down payment.

You hit me up at Thanksgiving. I will cut to the ending for everybody. You closed on May 1st, 2023. Congratulations. What were the differences when the unicorn ended up getting you to a lender? Did that change your payment structure and what you were doing with the savings and the debt reduction? Did you find new options or did you go in and say, “What can I do?”

That’s a little bit of me working harder than I should have needed to ahead of time to solve some of that earlier. By the time I was meeting with my team, I had a lot of ducks already in a row, so they didn’t have to add any corrections or any adjustments. One of the things that I felt so silly about later on was that I agonized over trying to figure out how much money I was making, how much debt I had, what down payment I had. The agony over, will I even qualify for enough, felt so silly later.

I reached out to a lender. I had a friend that had a great experience with a lender. I reached out to him ahead of time and said, “Here’s my hypotheticals. This is what I make. This is what our debts are. What house would we potentially qualify for?” He was able to give us a ballpark range. That number, that confirmation made our timeline speed up so much. This fear went away. This reality of, “This is possible. Let’s get this ball rolling.” They made it real and that’s when I started hitting the ground running with things.

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I love me some Kendall. You can read her full episode with many more tips on first time home buying in Episode 187. If you go the easy route, which makes sense to a lot of people, and you work to chip away on your debt, all on your own, thinking that this is going to be the fastest way for you to get to loan approval. You are going to miss some major money-saving and money-making opportunities, things that you can explore when you work the budget and balance method with the right professional team that can show you the loan approval numbers in every step of your debt reduction plan.

For those of you who are organized and you are the person who likes to get all your ducks in a row. “Okay Captain Organized, let’s learn from another doctor on how their home buying process unfolded once they finally got the professional support team to help them find all their options when they were preparing. This is from John and Richard from Episode 186. One of my favorite couples.

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Why Gross Debt Doesn’t Matter In Mortgage Approval

That is a team sport.

I was joking obviously. Student loans. The headline for this episode is John came to me and said, “I have $300,000 in student loans. What can I do?”

We talked with Kathy, who was our lender. She was amazing. She went through, pulled our credit. That was one of the first things too. It was like, “Should I let her pull my credit? What’s that going to do?” I read one of your episodes. Soon after that I was like, “Just do it. Let them pull your credit. You want to do it as early as possible. That way it doesn’t affect your stuff later on and you want to know everything there as early as possible.” We said, “Let’s go ahead. Let’s pull the credit. Let’s see what we got.” She asked us what our monthly minimums were on the stuff that was on my credit report.

We handed over all the documents and bank statements, 401(k) stuff, just everything, savings, and stuff so that we could get it all going. I have done my own “research” so I thought I had a handle or knew going in like, “This is what I can expect.” It turned out to be not nearly enough compared to what she brought to the table.

It’s very hypocritical because, as a primary care doctor, I hate when patients come in with their WebMD Google search stuff. It’s like I was doing the exact same thing, but she was wonderful. She answered all my questions, corrected a lot of my misconceptions. I thought, “A physician loan would be best for us because of my student loans.” I brought that up to her and she showed us and ran the numbers and it depended on what house we wanted to get.

The interest rates were still better with an FHA loan or even the regular conventional as opposed to a physician mortgage for our situation, which was crazy to me. She showed us the numbers. She showed us everything. Very transparent. She was like, “Here you go. This is what it’s going to look like for you.” I was like, “Wow, okay.” That difference in rate made all the difference even with or without PMI. We were so scared of, “I don’t want to pay a PMI, so let’s do a physician mortgage,” but here we are.

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However, you are reading this episode, go ahead and exercise your rewind capabilities. Did everybody know that? He talked about being over prepared, waiting to get a credit pull and the WebMD thing, these guys thought for sure because they did some research online that with $300,000 worth of student debt, they were going to have to put $20,000 down to avoid the PMI and have to use this physician’s loan that they read about online.

With the advice of the unicorn, they understood that even with a gross amount of student loan, gross debt, they had better options. Things they couldn’t find on Google because their own personal variables were too numerous to try to fit into a one-size-fits-all program that you could slap up on a website. The cool thing is they ended up buying a home with an FHA loan that was well below a 20% down payment.

They got a better interest rate than the stuff they’d researched online, and most importantly, when it comes to the debt. The $300,000 did not hold them back at all. It was an amazing episode, and that’s one snippet. I could have dropped the whole episode in here and made this 1 of those 4-hour long Joe Rogan episodes. Check it out. Episode 186. Make it next on your playlist.

Lots of information here. Are you getting what you came for? Debt is important and you are getting legit real advice from some old dude drink who knows that the right team imparting their knowledge and expertise that you can get results like those people that you heard, and you can do it faster and easier than the internet can tell you how to do it.

Final Debt Advice: Don’t Fall For One-Size-Fits-All Plans

We get it. We don’t know what we don’t know. For instance, this extra tip. If you have a ton of debt and you want to buy a home, I don’t recommend that you consolidate your debts into a credit card consolidation loan or any other type of consolidation loan. If you read the last episode and you Googled the credit score pie chart, the old wheel of credit. You’ll see why consolidation loans don’t make sense. They help you manage unmanageable debt, but they do that by closing all of your accounts, and then they give you one new low payment.

What happens when you close accounts? You lose all the credit history for that slice of the pie. Better to work on your own, create a plan, and there are several different options. It’s like a personal loan is an installment loan that you can get without having to close everything else. It’s better for your credit score, and then you can work the snowball program or other programs to get your debts down.

There are a ton of different options. For some people, unfortunately, maybe that’s what you have to do, but it’s going to slow down your credit score and slow down your ability to buy a home. I recommend that you work with a professional that can give you all your options before you jump into that, especially if it’s a desperation move.

Here we are in 2025. We are in a new economy with new tricks and tips. These things that they have to do, if you want to navigate your way through things. Although, if you are looking at your debt and you are thinking, “Maybe I’m going to pay this down completely,” and you think that’s a good philosophy, that doesn’t take into account the crazy high monthly output of these rents, which are continually rising.

One of the only ways to get ahead in this game and to beat the annual negatively changing formula of rents versus wages, which is getting more and more skewed every year, is to create your rent replacement strategy with a fixed monthly payment even while carrying debt. This new economy is different from your parents or your grandparents.

If you use those dinosaur tactics to save up for a home, you are going to be paying rent until you start collecting social security. I have been doing this since 2019 and a lot of people question me and I love to say to them, “I get it.” If you question this method and you ask me, “How could that be more beneficial? It’s not reasonable and logical. It’s not safe.” It is because of math. I don’t charge for this financial advice on home buying because I’m not trying to build my empire on the backs of the very people who need to save every penny. Little dig there.

Last piece on debt. This is a bonus insider tip. If you have some time, and you are thinking about maybe you want to do something a little more creative, check out Episode 56. It’s a sick trick. It’s what my unicorn lending team came up with. Check it out. It’ll show you how there are creative ideas that you cannot find with a simple Google search. That’s debt. This is a long episode. The good news is you made it halfway through the ten steps. You rock. Excellent. Work up next, Saving Money to Buy a Home. You can do this.

Important Links

• Episode 262 – Breaking Down the Housing Affordability Crisis
• Episode 167 – Interview: Buying a $300K Home With Only $18k? Yes!
• Bad with Money
• Episode 164 – START HERE: 10 Steps to Buying Your First Home
• Episode 187 – Balancing Saving and Paying off debt to find IMMEDIATE PEACE
• Episode 251 – How to Stop Renting: Make This Your Last Lease Ever
• Episode 186 – Buying a Home with 300K of Student Debt?
• Episode 56 – The Advanced Hack to Raise Your Credit Score and Get Extra Cash for Your Down Payment

This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!

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