Will having credit card debt affect me getting a mortgage
We understand that everybody’s circumstances are different therefore we always recommend that you pick up the phone, or drop us a line we are happy to lend an ear and advise for FREE
As a general rule if you have credit card debt it does not automatically mean you cannot get a mortgage. Each lenders criteria tends to differ but, as a rule of thumb the lower your debt-to-income ratio the better, or in plain English if your debt is low and your income is high you stand a better chance.
What else do mortgage lenders look at?
Lenders will want to know how reliable you are at paying back the current debt you have in place. So, any missed or late payments will be seen as a negative, making a lender more reluctant to want to lend any money to you as it could suggest you are financially struggling already to pay back what you have already borrowed.
Is it better for me to pay back any credit card debt before applying for a mortgage?
In an ideal world absolutely.
If you have means to clear your debt such as savings sitting in an account, you are better off clearing the debt on the accumulating interest, which will very likely outweigh any gaining interest on keeping money in savings. Clearing your debt is far more appealing to a lender and will improve your credit score potentially giving you better access to good mortgage rates.
If you look at it like this… If you had a friend who asked you for a substantial amount of money and you knew they were already in debt would you be concerned that they may not be able to pay you back?
Is there a maximum amount of debt I can have when applying for a mortgage?
It does not work that way as lending criteria varies between mortgage lenders. BUT it is better to clear as much debt as you can before applying for a mortgage.
It is worth considering that if you use funds you have saved for a deposit to pay off your credit card debt, your reduced deposit could now affect the rate of interest on your mortgage. The best deals are offered to those who are able to obtain the lowest loan-to-value (LTV) which is the proportion you are borrowing in relation to the value of your property.
How can I improve my chances of a mortgage application approval?
1. Pay off as much debt as you can afford
2. Pay off more than the minimum amount each month and never miss a repayment
3. Take control of your spending habits. Cancel any subscriptions you don’t need. Cut back on eating out, social events and buying drinks on the go…All of these make a big difference overtime
4. Get organised. Being prepared not only improves your mindset but will help you stay on track with your goal so, start getting your paperwork in order such as ID, proof of address, and proof of 3 months earnings.
Remember SMALL changes make BIG changes overtime…
We are always here so no need to worry, we will always give you constructive advice of how to make the dream of owning a home a reality.
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