It pays to check it off your list if you’ll be applying for a home loan.
- There are different factors mortgage lenders consider when assessing home loan candidates.
- Paying off credit card debt could make it easier to qualify for a mortgage in more than one regard.
If you’re looking to buy a home, you’re probably well aware that getting approved for a mortgage isn’t guaranteed. Rather, there are different factors that mortgage lenders look at when evaluating loan candidates. These include your:
- Credit score
- Existing level of debt relative to your earnings, known as your debt-to-income ratio
- Funds available for a down payment
There are different steps you can take to make yourself a more appealing mortgage candidate. But if there’s one move it pays to make on the road to getting a mortgage, it’s paying off credit card debt.
How eliminating credit card debt can help you buy a home
Reducing or eliminating your credit card debt could help you qualify for a mortgage in several ways. First, it could help your credit score improve. The higher that number is, the more likely you’ll be to qualify for a home loan.
Of the various factors that go into calculating your credit score, your credit utilization ratio carries a lot of weight. That ratio measures the amount of your available revolving credit you’re using at once. The less of a total credit card balance you have outstanding, the lower that ratio will be — and the higher your score will be.
Furthermore, paying off credit card debt could help your debt-to-income ratio improve. That ratio measures your existing level of debt relative to your income, and the higher it is, the more difficult getting a mortgage becomes.
If lenders see that a large chunk of your earnings are already monopolized by debt payments, they’ll be less likely to want to add to that debt by granting you a mortgage. But if you reduce your credit card debt, your debt-to-income ratio should shrink.
How to pay off credit card debt
If you have a bunch of nagging credit card balances, consolidating your debt could make it …….