I'd like to buy a house next year but I'm concerned about credit card debt?

Question

Overall I have good solid credit. I pay all my bills on time, I've paid down a $27K car loan to ~$14K in a year and a half, etc. The one thing that might be keeping my credit score from being a perfect A would be the balance that I've accrued on credit cards over time(paid on time, all the time). I know that debt-to-credit limit ratio affects my FICO credit score. So I'm a little concerned about how that will affect my ability to get a mortgage.

I'm looking to get a mortgage sometime next year. I pay $875/mo. for a 1bedroom apartment, and although I love my apartment, I hate the idea that I'm not building any equity. I also hate the idea that I can get a small house mortgage for that price, which would be a much bigger place than my 1bedroom place. Would my credit card debt hinder me from getting a mortgage at a half decent rate?

Also, any ideas on how to tackle the debt? Should I consider a personal loan to pay off my cards with, at a lower rate? Thanks.

Hmm let me reclarify: What effect does credit card debt have on qualifying for mortgage rates? Right now my cards have >50% of the credit limits utilized(but I'm trying to pay them down). Also, would it be wise for me to get a personal loan to pay off my credit cards with?(or would that have no net effect, since essentially it's just shuffling around debt?)

For anyone who's wondering: My credit is good. I have a paid-on-time student loan, a paid-on-time car loan(I've been paying it off fairly quickly), a personal loan that I paid off 2yrs early, a few store cards with $0 balances, and 2 bank cards that are >50% utilized(I feel bad about that). I don't know what my FICO score is right now, but somewhere around the high 600s I think(could be higher if it weren't for the credit card balances).

Thanks for the advice, everyone! :) Usually I do pay off my cards in full each month, but a few months ago I had some emergency expenses to cover and that's why I have credit card balances now. I hate owing money...this is the 1st time in a few years that I have to pay card interest! LOL I hate it.

Answer 1

You're getting excellent advice here. I would be careful about getting a loan to pay off the credit card debt though if you don't cut up your cards. You could easily end up with a loan and more credit card debt.
The wisest way to use credit cards is to pay them off IN TOTAL every month. It may take you some time to pay off existing balances, but NEVER put more on your cards than you can pay off that month. (Banks call people like that "deadbeats" because they don't pay the ridiculous fees that others pay. I'm proud to be a "deadbeat"--wish my husband was.)
Banks have standards about how much debt you can carry. Usually, they want the mortgage to be no more than 28% of your income and total debt payments to be no more than 40%.

Answer 2

Mom below is correct. You need to consolidate all of your Credit Card bill into "One" monthly bill so it will not hurt your being able to acquire a Mortgage loan. A Mortgage Company is gonna look at how much you have to pay out each month, and compare it to your "Total "Bring Home Pay" and see if you are able to make the payments each month. You do need to get rid of all your Credit Cards but One and do not use it unless its absolutely necessary. That Plastic Card does come in handy but it is so tempting to misuse it.. Use your head in handling Money Matters and you will go Far...

Answer 3

What is important is the debt payment amount, not so much the actual debt. If we assume your fiance will make about the same as you say 35,000 and you do the same that gives you about 70,000 combined income. You really should have about 20% to put down on a house but loans are available for considerably less. With no down payment the payment on a 295K house would be about $1583.62 plus insurance and taxes. Which means you should just about qualify. I would suggest you save at least 10% for a down payment and then go for something around $150,000. This way you will not be strapped. If you save 20% and put it down you will not have to buy mortgage insurance which is a nice savings. Good Luck.

Answer 4

Credit utilization does impact your score. Whe I applied for my mortgage, my balances were very low. I think I had less than $1,000 total.

I know that after I got my mortgage, I started using my cards for new house stuff. My balances shot up and, 5 months after I applied for my mortgage, I went to my bank to borrow $10,000 for a bathroom re-model. My score had droped 70 points because of the new debt I had acquired...though it was still good enough to get the loan.

They say credit utilization should be one-third of your available credit...but your score sounds good enough to get a decent mortgage.

Answer 5

Yes, find a low interest loan and consolidate all of your credit cards into one payment. Then rip up all of the cards that you paid off and concentrate on paying the loan off. Dont buy anything unless you pay with cash or debit card. I did this and it was so worth it. We are now totally debt free and own three houses!!

Answer 6

You could go to the bank or credit union or mortgage company where you will apply for a mortgage, and ask them to evaluate you now to see if you'd qualify for a mortgage. Then ask them what could you do to improve your qualifications so that you have a better chance to get it in a year.