It’s a move that can benefit you in more ways than one.
- There are different factors mortgage lenders account for when evaluating loan candidates.
- One specific move could help both your chances of getting approved and your finances at the same time.
- Paying down your credit card debt can improve your credit score, making you a more appealing loan candidate.
Most people who wish to buy a home can’t just purchase one outright. That especially holds true today, given that home prices are way up on a national level.
If you need a mortgage to buy a home, you may be aware that that loan isn’t guaranteed. Rather, you’ll need to convince a mortgage lender that you’re a trustworthy borrower to get that home loan approved. And one move on your part could make it easier to get a lender to say yes.
A key step to take on the road to buying a home
The less credit card debt you have when you apply for a mortgage, the more likely you are to get approved. And so if you’re eager to buy a home, it pays to work on whittling down or eliminating your credit card debt before seeking out a mortgage.
There are different factors that mortgage lenders look at when assessing home loan candidates. And paying off credit card debt can help with two of them. First, there’s your credit score. A higher credit score sends the message that you’re good at managing bills and paying them on time. But if you’re carrying a lot of credit card debt relative to your spending limit across your various cards, it could drive your credit utilization ratio into unfavorable territory.
That ratio measures the amount of revolving credit you’re using at once, and a ratio that’s too high can negatively affect your credit score. Specifically, you don’t want that ratio to exceed 30%. So if you have a total credit limit of $10,000 and have a balance across your cards in excess of $3,000, it could be damaging your score. This holds true even if you’re timely with your minimum monthly payments.
Additionally, mortgage lenders look at your debt-to-income ratio when deciding whether you qualify to borrow money for a home. That ratio measures your monthly debt obligations relative to your income.
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