Pay Off Credit Card Debt Before Applying For A Mortgage Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. SHARE: Rob Daly/Getty Images May 02, 2022 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Poonkulali Thangavelu is a senior writer and columnist at CreditCards.com and Bankrate, addressing debt and credit card-related legal and regulatory issues. Cathleen's stories on design, travel and business have appeared in dozens of publications including the Washington Post, Town & Country, Wall Street Journal, Marie Claire, Fodor’s Travel, Departures and The Writer. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Terms apply to the offers listed on this page. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Bankrate logo The Bankrate promise
At Bankrate, we have a mission to demystify the credit cards industry — regardless or where you are in your journey — and make it one you can navigate with confidence. Our team is full of a diverse range of experts from credit card pros to data analysts and, most importantly, people who shop for credit cards just like you. With this combination of expertise and perspectives, we keep close tabs on the credit card industry year-round to: Meet you wherever you are in your credit card journey to guide your information search and help you understand your options. Consistently provide up-to-date, reliable market information so you're well-equipped to make confident decisions. Reduce industry jargon so you get the clearest form of information possible, so you can make the right decision for you. At Bankrate, we focus on the points consumers care about most: rewards, welcome offers and bonuses, APR, and overall customer experience. Any issuers discussed on our site are vetted based on the value they provide to consumers at each of these levels. At each step of the way, we fact-check ourselves to prioritize accuracy so we can continue to be here for your every next. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. According to Experian, the in the U.S. in 2021 was $5,525. For people applying for a mortgage loan, credit card debt can pose a problem. If your credit score doesn’t qualify you for the lowest possible rate, you’ll owe thousands of extra dollars in interest over the life of the loan. You can also be denied a mortgage loan if your credit card balances and other debt are too high, or your payment history lowers your credit score beneath the required threshold. A home is one of the single biggest purchases the average American will make. With the of a U.S. house at $360,000, the interest rate you receive really matters. The difference between a 4.5 percent and 5.0 percent rate means $90 dollars a month on a $300,000 mortgage. That $90 isn’t just money to keep in your wallet, either. With a lower interest rate, you can also choose to make extra payments on your principal each month. Those additional payments can help build equity faster. When you look online, the low rates you see are “teaser rates,” typically only available to people with excellent credit (a score of 780 or above). It’s important to have a realistic sense of what your rate will be based on your current credit score. Should you pay off all credit card debt before getting a mortgage? In some cases, especially if your current for you to get a mortgage loan, it’s a good idea to pay down credit card debt. But keep in mind that credit card debt isn’t the only factor in getting mortgage approval. There are other variables (such as your income and employment situation) you need to consider if you carry debt and are looking to be approved. How does credit card debt affect your credit score
Paying off your credit card debt can raise your credit score since you will be using less of your available credit and lowering your , which accounts for about a third of your credit score. Lenders can see that you have more of your income available to make mortgage payments. However, it’s not always necessary to have an excellent score in order to end up with a competitive interest rate. If you have a (at least 670) and qualify for a private mortgage loan (a of 580 is enough for an FHA loan), you can usually buy a “point” for an additional 1 percent of the loan value in order to reduce the interest rate from, say, 5 percent to 4 percent. Over the long haul, that could be a good investment. Another option is to hold your mortgage for a few years, allow equity to build and then refinance to a lower rate. This can be a riskier strategy since mortgage rates could climb, the price of real estate could drop or both. How does credit card debt affect getting a mortgage
Having credit card debt in itself isn’t going to stop you from qualifying for a mortgage unless your monthly credit card payments are so high that your debt-to-income ratio is above what lenders allow. Banks and other mortgage lenders obtain your debt-to-income (DTI) ratio by dividing your monthly debt by your gross (pre-tax) income. There are actually a mortgage lender may consider: The front-end ratio divides your monthly housing outlay—including the mortgage payment, insurance, tax and any homeowner association payment—by your gross income. You typically need to stay below 28 percent to be approved. The back-end ratio takes your total debt payment into consideration, including your credit card payment. You should aim to stay below 36 percent. Lenders generally consider the back-end DTI ratio more significant, since it provides a better picture of your ability to make your mortgage payment. And if it’s above 36 percent, you’ll have a hard time qualifying for a loan. Sometimes, lenders don’t even consider installment debt that is almost paid off in their DTI calculations. Tips to alleviate credit card debt
There are a few ways to pay down credit card debt before you apply for a home mortgage loan, but there could be an impact on your credit score in the short term. Zero percent APR card
If you get a , you’ll see a slight hit to your credit just for having a hard inquiry on your account. This is something to keep in mind if you plan on applying for a mortgage loan within a few months. Borrow from friends and family
Another way to pay off debt is to get a from friends or family members. Just remember that lenders calculate DTI based on your monthly payment amounts, not your credit card balance. Paying off part of a credit card loan won’t affect your DTI that much—though it could be just enough to put you below 36 percent. Rollover your debt into a personal loan
You could also and consolidate all of your credit card debt into it. This would typically help lower your monthly debt payments, boosting your DTI ratio. The bottom line
Credit card debt is costly and should be the first thing you target in a debt-reduction strategy. But if you’d like to buy a house right away, it won’t necessarily be an impediment to loan approval provided that your DTI percentage is low enough and you have good to excellent credit. Finding the best you qualify for is the first step of your journey. Once you own a home, you’ll be able to build equity and net worth, which can lead to even more debt-reduction options. SHARE: Poonkulali Thangavelu is a senior writer and columnist at CreditCards.com and Bankrate, addressing debt and credit card-related legal and regulatory issues. Cathleen's stories on design, travel and business have appeared in dozens of publications including the Washington Post, Town & Country, Wall Street Journal, Marie Claire, Fodor’s Travel, Departures and The Writer. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Related Articles