Low mortgage rates have encouraged many first-time home buyers, even those with consumer debt.
Some potential homeowners are reluctant to apply for a mortgage because they have credit card debt, personal loans, or student loans.
Multi-lender sites like Credible can help you weigh the pros and cons of home refinancing. Specifically, Credible can compare multiple lenders and refinance rates on one screen so you can see if you can save money and reduce your loan life throughout the process.
Should You Be Debt Free Before Buying a Home?
Financial experts recommend that consumers consider these five factors before getting a mortgage:
- Do I have to take out a mortgage with existing credit card debt?
- Pay off debt first
- Considerations before buying a home when you are already in debt
- How to quickly pay off credit card debt
- How does this affect couples with credit card debt who want to buy a home
1. Do I have to take out a mortgage with existing credit card debt?
People who still owe money on their credit cards may qualify for a mortgage, but that depends on how much they owe against their paycheck and other savings. The amount of credit card debt you have will affect how much you can borrow to buy and receive a home with good rates and limited costs, said Leslie Tayne, an attorney from Melville, NY. specializing in debt relief.
âConsumers should consider checking their debt ratio before buying a home and their existing credit rating,â she said.
To see if you qualify for a mortgage based on your current credit rating and salary, visit the Credible Multi-Lender Marketplace.
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2. Pay off debt first
Paying off as much debt as possible before applying for a mortgage is ideal because it helps consumers improve their credit scores, which mortgage lenders use to decide the interest rate a buyer will receive.
âBecoming completely debt free with credit cards can be unnecessary and unrealistic,â Tayne said.
If you want to take advantage of today’s low mortgage rates and have paid off your debt (or think you have a good credit score as it is), be sure to use Credible’s free online tools to get started. to save today.
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3. Considerations Before Buying A Home When Already In Debt
Having less debt means it can free up a homeowner’s budget as there are other costs to factor in each month, including property taxes, maintenance fees, and other bills.
Applying for a mortgage when you have credit card debt isn’t a barrier as long as what you owe does not exceed the lender’s debt-to-income ratio guidelines. Typically, lenders look for a ratio of 36% or less and arrive at that figure by dividing your monthly debt payments by your gross monthly income, said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, an organization not based in Washington, DC. for-profit organization.
Use a online mortgage calculator to determine potential monthly payments or insert your numbers into Credible and view your estimated mortgage rates and monthly payments.
4. How to quickly pay off credit card debt
Beyond paying at least 10% more than the minimum monthly payment, consumers should consider affordable balance transfer or debt consolidation options.
If you think a debt consolidation loan might be the best choice for you, visit an online marketplace like Credible to get an idea of ââyour options.
You can also use Credible’s tools to instantly browse balance transfer and other credit card options.
âAs long as you can reduce the interest and fees accordingly, you’ll have the edge,â McClary said. âYou shouldn’t take on new debt or open new accounts right before you apply, as that could be a red flag in the approval process. “
Consider prioritizing and paying off high interest debt first.
âBudgeting allows borrowers to see the big picture in terms of money going in and out of their accounts each month,â Tayne said. âOnce the bills are paid, the remaining money can be used to significantly reduce their debt, which can improve borrowers’ chances of getting loan approval quickly and cheaply. “
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5. What is the impact on couples with credit card debt who want to buy a home?
Couples should discuss their credit scores and history before applying for a mortgage, as they are both considered. The total amount of debt can affect how much of a mortgage you can qualify for together.
If your unsecured debt is $ 250 per month, this could reduce your potential purchase price by approximately $ 50,000, while $ 500 per month could reduce your potential purchase price by approximately $ 100,000, a said Jackie Boies, senior director of housing and bankruptcy services for Money Management. International, a nonprofit debt counseling organization based in Sugar Land, Texas.
âHaving debt in the process will make it harder to qualify for a loan and live comfortably after your purchase,â she said.
Credible can help you compare multiple mortgage lenders at once in just a few minutes. Use Credible’s online tools and get prequalified today.
It may be helpful to meet with a housing counselor from a nonprofit credit counseling agency as your financial details are reviewed and other important factors such as your credit rating, debt ratio, and plans. down payment are discussed.
âYou’ll work out a realistic budget and come away from this session knowing if you can really afford to buy a house,â Boies said. âYour advisor will issue you with an advisory certificate, which you can present to the lender of your choice. “
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