Free Tool

Down payment or debt payoff?

You've got cash from your home sale. Most buyers assume "more down payment = better." It's not always true. Pay off your existing debt first and your DTI improves, often unlocking a bigger purchase price than maxing the down payment would.

Edit any number below to run your own scenario. The tool compares Option A (all cash to down payment) against Option B (pay off existing debt first, rest to down payment) and shows you the resulting DTI for each.

The Setup

You're buying a new home at $750,000 with $150,000 cash ready for closing (your target 20% down payment). You're carrying $45,000 in debt you'd consider eliminating (car loans, credit cards) that costs $850/mo, against a household income of $14,000/mo. Should you put all $150,000 toward the down payment, or use part of it to wipe out that debt and finance a slightly larger mortgage?

Option A

All cash to down payment

Debt payoff $0
Down payment $150,000 (20%)
Loan amount $600,000
Existing monthly debt $850/mo
New mortgage payment ~$3,792/mo
Total monthly debt $4,642/mo
DTI 33.2% — Comfortable
Option B

Pay off debt first, rest to down payment

Debt payoff $45,000
Down payment $150,000 (20%)
Loan amount $600,000
Existing monthly debt $0/mo
New mortgage payment ~$3,792/mo
Total monthly debt $3,792/mo
DTI 27.1% — Healthy
The takeaway: Option B lowers your DTI by roughly 4.1 points and eliminates $850/mo of consumer debt. The trade-off: your down payment shrinks from 20% to 14%, and your mortgage payment grows by about $284/mo because the loan is bigger. Net result is still better, but it's worth knowing the levers.

Assumes 6.500% on a 30-year fixed mortgage (live rate from our Rate Outlook, updated Sep 16). Click any value to edit. Numbers are estimates and rounded.

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Christian Kosko | NMLS# 1415795 | Fairway Independent Mortgage Corporation
NMLS# 2289 | Equal Housing Lender | Licensed in DC, MD, VA

This tool is for educational purposes only and does not constitute a rate quote or loan approval. DTI calculations use our current 6.500% market rate (from the live Rate Outlook feed) over a 30-year term. All loans subject to underwriting approval.

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