Continue paying down debt or save more for down payment?
I am going to be moving to Phoenix from Alexandria, VA. I will most likely be keeping my current job/salary, and the home prices are *very* appealing. I also have several pets, and it would be nice not to drop another $500-1000 (on pet *fees*, not deposits) for another short-term living situation. I have been making great headway in paying off debt, and I've got a $5k personal loan and some small credit card balances. I've been paying approximately $1500 extra per month on the highest interest rate balances, and based on my income, the required payments are minimal (from a debt-to-income standpoint). I've also got some money tied up in accounts I'd rather not touch right now, so I'm not sure if I should stop paying so much on my debt and use the extra money for a down payment, or if I should go for a no/low down payment mortgage (I'm also eligible for the first-time homebuyer's credit, which I understand can be applied to your down payment through various programs) and continue to pay off my remaining debt.
I'd like to take advantage of the homebuyer's credit, since I'm already moving to a new place with a much lower cost of living *and* keeping my existing salary. I also don't want to be too eager and make a bad decision. I've gone through the prequalification process with my bank, and they've approved me for way more than I'd ever spend, and my price range puts my mortgage payment (principal, interest, taxes, and insurance) right around my current split of the rent, so I'd still be able to keep dumping money on my debt to pay it off by year's end.
I'm leaning toward the low/no down payment option, since I will still have about the same about of money left over to throw at debt. Sorry for the long post, but I need some reasonable folks to tell me I'm not making a hasty decision based on a desire to own a home with a yard vs. sucking it up, renting, and paying ALL of my debt off before buying a house. That $8,000 sure does look nice, considering the cheapo houses I'm looking at.
For what it's worth, I'm looking at homes under $135k, regardless of what I qualify for.
As for other expenses, like utilities in a desert vs. a temperate climate, my best friend also lives in Phoenix, so I understand where I'll be losing/saving there, as well. It's just hard to pass up buying a $130,000ish single family home when I can barely buy a tiny condo here for less than $300,000.
Can I get some objective bystanders to give me some perspective?