Pay Off Debt or Save for a Down Payment?
September 1, 2025
How to Decide What’s Smarter for You.
You’ve been dreaming about buying a home, scrolling through listings, picturing your perfect space, maybe even mentally arranging the furniture. But then reality hits: you’ve got some debt, and you’ll also need a down payment.
Which should come first?
It’s one of the most common questions we hear from homebuyers, and the truth is… there’s no one-size-fits-all answer. Let’s break it down so you can make a decision that feels right for both your finances and your peace of mind.
A Quick Rule of Thumb
- High-interest debt? Pay it down first.
- Low-interest, manageable debt? Focus on your down payment.
- Somewhere in between? A balanced approach might be your best friend.
Paying Off Debt First
Pros:
- Boosts your credit score – Lower debt can improve your credit, which helps you qualify for a mortgage and potentially lock in a better interest rate.
- Increases monthly cash flow – Fewer payments mean more breathing room for your mortgage, savings, and other expenses.
- Reduces financial stress – Having less debt can make the homebuying process feel more exciting and less overwhelming.
Cons:
- Slows your down payment savings – Extra payments toward debt may delay reaching your savings goal.
- Possible missed market opportunities – If home prices or interest rates rise while you’re focused on debt, you could end up paying more in the long run.
Example:
Alex has $12,000 in credit card debt at 19% interest. By paying it off quickly, they’ll save thousands in interest and likely see their credit score jump, which could mean a lower mortgage rate later.
Saving for a Down Payment First
Pros:
- Gets you into a home sooner – If you’re eager to buy, prioritizing savings can get you to the closing table faster.
- Builds home equity – Once you own, your monthly payments build your asset instead of paying rent.
- May avoid PMI – A 20% down payment can help you skip private mortgage insurance, saving you money over time.
Cons:
- Debt still affects your approval – Even with a healthy down payment, high debt can limit loan options or raise your rate.
- Higher monthly obligations – Debt plus a new mortgage can stretch your budget thin.
Example:
Taylor has a low-interest car loan but wants to buy before prices rise further. By focusing on saving for the down payment, they can secure a home now and tackle the remaining debt afterward.
Balancing Both Goals
You don’t always have to choose one path. A blended strategy can work well:
- Know your numbers – Review your credit score, monthly budget, and target down payment amount.
- Tackle high-interest debt first – Focus on credit cards and personal loans while still setting aside some savings.
- Use windfalls wisely – Tax refunds, bonuses, or side gig income can be split between debt payoff and down payment savings.
- Leverage loan programs – Some mortgages require as little as 3% down, allowing you to keep making debt progress.
- Talk to a lender early – Even if you’re a year away from buying, a mortgage pro can help you map out the smartest balance.
What Not to Do
- Empty your savings to pay off debt, leaving no emergency cushion.
- Delay homebuying indefinitely if the market is moving faster than your payoff plan.
- Ignore easy wins like refinancing or consolidating high-interest debt before you start saving.
The Bottom Line
Numbers matter, but so does peace of mind. If carrying debt keeps you up at night, paying it down might be the right move for you, even if the math suggests otherwise. If you’re comfortable with your debt and the market’s heating up, getting into a home sooner might make more sense.
At DNVR Lending, we look at the full picture, your goals, your budget, and the market, to help you create a plan that works for you. Whether you’re aiming to pay off debt, save for a down payment, or balance both, we’ll guide you every step of the way.
DNVR Lending Blog
Looking to make a move in Denver? With summer’s longer days, vibrant neighborhoods, and a robust housing market, now’s the perfect time to house hunt. Whether you're a first-time buyer, upsizing, or investing, here are five Denver neighborhoods heating up this season and why you should take a closer look.
As Colorado’s real estate market continues to grow, more neighborhoods are crossing into luxury price territory—sometimes without buyers even realizing it. Areas like Boulder, Cherry Creek, Vail, and Aspen are well-known for their higher price points, but increasingly, pockets of Arvada, Denver’s Highlands, Washington
From the towering peaks of the Rockies to the vibrant cities along the Front Range, Colorado offers dream-worthy destinations for every kind of homeowner. But when it comes to buying a home, mountain and metro properties come with very different considerations.
When buying a home, many people assume they need to save up a 20% down payment. While that amount may have been the standard in the past, today’s homebuyers have a variety of options that can make purchasing a home more accessible, especially for first-time buyers.
Let’s break down the facts about down payments, including low-down-payment loans and programs that require no down payment at all.
Buying a home is an exciting journey, but before you start touring properties, there's an essential first step: getting pre-approved for a mortgage. Pre-approval is more than just a financial formality—it can significantly strengthen your buying position and make the process smoother from start to finish. Here’s what you need to know.
When you're preparing to buy a home, your credit score plays a crucial role in determining your mortgage terms. A strong credit score can help you secure a lower interest rate, saving you thousands over the life of your loan. If your score needs improvement, don’t worry—there are practical steps you can take to give it a boost.
In the world of lending, ethical practices aren’t just a standard—they’re a necessity. At DNVR Lending, we understand that buying a home or refinancing is one of the most significant financial decisions you’ll ever make. That’s why we’re committed to upholding transparency, fairness, and trust in everything we do. Here’s why ethical lending practices matter and how we ensure they remain at the core of our work.
As we head into 2025, many homeowners are wondering if this is the year to refinance their mortgage. Refinancing can be a powerful tool to save money, reduce debt, or reach financial goals—but it’s not a one-size-fits-all solution. Here’s what you need to consider before making the move.
Whether you're a homeowner or planning to become one, these five smart financial moves can help you make the most of your year-end review.
Elections can stir up conversations about policies, leadership, and national direction, but they also have a direct impact on industries—including mortgages and real estate. As we approach another election season, it’s important to understand how this can affect the housing market, mortgage rates, and homebuying trends. Here’s a breakdown of what’s typically affected, how it plays out, and the usual timeline of these changes.
