I am in the market for a home loan of $120,000.  I have $10,000 in
cash reserves, which may not seem like a lot except that there are so
many loan programs out there, some requiring only 3% down.  I have
$12,000 in debts.  Should I use the entire $10,000 for a down payment
and closing costs, or should I use half of that to pay down my
creditors and go with a low down program?

brownsugar...

If you put down 3% ($3600), with closing
costs of around $2000, your principal
would be $116,400. On a 30-year loan at
9% interest, your monthly payment is $936.58,
and you have $4400 to pay off your debts.

Assuming a down payment of about $8000
and closing costs around $2000, your
principal would be $112,000, so your
$10,000 would result in a monthly payment of
$901.18, for a savings of $35/month, for 
the same 30-year loan at 9% interest.

See the mortgage calculator here:
http://www.azfcumortgage.org/resource/calculator.asp?sec=res
You can adjust the principal, interest
rate and length of loan to suit your 
specific loan.

The question then becomes: will paying my
creditors $4400 reduce my monthly payments
by more or less than $35/month? This will
depend on how many creditors you owe, and
at what percentage of interest are you 
paying them. However:

If you owed $12,000 on one credit card,
your minimum payment would be on the 
order of $300/month (at 18% interest).
If you paid this down by $4,400, the 
minimum payment on the resulting 
balance of $7,600 would only be about
$190/month - a savings of $110/month,
and a savings of $75/month over what
your higher down payment would save
you on your monthly mortgage payment.

See this calculator for determining
"minimum monthly payment". You can
adjust your interest rate and the
"minimum payment percentage" to match
the card(s) you use:
http://www.bankrate.com/brm/calc/MinPayment.asp

The extra $75/month is an amount you
could use to save toward a yearly
"extra" mortgage payment. Early
payoff of your mortgage by paying
an occasional "double principal payment"
has tremendous benefits in reducing the
total amount of interest paid into 
your mortgage, as well as reducing
the length of the loan. See this page:
http://www.mortgage-south.com/html/news.html

The bottom line is simply this:
The savings resulting from adding to
your down payment is a product of the
9% interest rate on the mortgage loan.
The savings resulting from paying off
creditors is a product of the 18-20%
interest they are charging you.

You'll save more by paying off your
creditors, saving the extra money you
have each month and paying an annual
"double prinicpal" payment on your
mortgage.


Searches made, via Google:

"credit card" "payment calculator"
://www.google.com/search?hl=en&ie=UTF-8&oe=UTF-8&q=%22credit+card%22+%22payment+calculator%22

doubling mortgage payments
://www.google.com/search?hl=en&ie=UTF-8&oe=UTF-8&q=doubling+mortgage+payments


If this satisfies your interest, I am
pleased to have been of assistance.
If further clarification is necessary,
please feel free to request a clarification
of this answer before rating it.

sublime1-ga

I thought the response was very thorough and clear.  I especially
thought the specific numbers were great.  I now have a better
understanding of how this works and a few websites to check out for
further information.  Thank you.