What is a mortgage?
When a lender says you qualify for a mortgage, you’re pretty much saying you’re a qualified borrower. And that means you’re not broke.
You’ve made your payments on time in the past, and you have a steady income.
But does this mean you can get a mortgage if you have credit card debt?
In short, not yet.
There’s a lot more that goes into your mortgage application than just how much you make.
And these days, not having credit card debt might not be enough.
People with huge credit card balances and other kinds of debt are still able to get approved for mortgages.
But only if they can prove that they can make their payments.
Today we’re going to talk about what’s considered acceptable credit card debt and how to get approved for a mortgage if you have this type of debt.
Why do people generally get mortgages?
Why do people generally get mortgages? Because people want to put some money down and take the risk of not getting the house. They like the idea of some of their money coming back if they default, but they also like the idea of investing in a house and the potential gains.
Here’s the problem: While the potential upside is there, you can’t put any money down unless you can find the extra money for it. The bottom line is that it’s extremely difficult to secure a mortgage while you have a lot of consumer debt.
This is because the banks and the big investment banks with the private-label mortgage securities aren’t willing to invest in your mortgage unless they feel like they’re getting paid back in some meaningful way for the loan.
Who is eligible to get a mortgage?
All applicants for a mortgage should be informed of the implications of credit and how it can impact their mortgage application. The type of mortgage an individual can get varies depending on their employment status, how much they earn, credit history, mortgage amount, and type of mortgage they are applying for.
When applicants apply for a mortgage, lenders assess applicants based on factors that include income, employment, debt, credit score, and assets. These are key credit-related criteria lenders consider before they make an offer.
How does credit affect your mortgage application?
Your credit score is the value of your credit history in the eyes of lenders. Mortgage lenders ask borrowers to provide their credit scores to gauge how likely they are to pay back a mortgage loan.
Must be a permanent resident
You have a minimum six years of Canadian residency
Must not have federal loan and tax debt
At least 20 per cent down
Minimum down payment of 5 per cent
You should have a low-ratio qualifying mortgage and
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But what if you want to be approved? How do you set yourself up for that shot at getting a mortgage approval in the best financial position possible?
The first thing to do is to confirm what exactly is going on, says Daniel Birnbaum, a senior loan officer at Havertown, Pennsylvania-based East Coast Mortgage.
Must be living in the home
The common rule that people with credit card debt can’t get a mortgage was wrong for almost two decades. What’s changing now is that you don’t even have to qualify. In fact, most lenders, including conventional and alternative banks, have changed their screening criteria and now consider past debt.
Unpaid credit card debt is no longer taboo for homebuyers with good credit. In fact, you may qualify for a mortgage in the first meeting, if you have a satisfactory credit score, job and income. To qualify for most mortgage lenders, a household income has to be at least 60% of the median or average income for the area. The income requirement varies among lenders. For example, with Veterans United, your income must be at least 110% of the median income.
Must have an excellent credit score
Must have an excellent credit score Will qualify for an FHA loan
Will qualify for an FHA loan Will also qualify for VA or USDA Loan
Will also qualify for VA or USDA Loan Will qualify for conventional loan
Before we move on, let’s talk about what having poor credit can do to you. One of the biggest factors in whether you qualify for a home loan or not is your credit score. Lenders will look at your credit report when determining whether or not to give you a loan. If you have bad credit, you have less to work with.
Poor credit can put a family home out of reach.
You need to be ready to do whatever it takes to increase your score. In my eyes, this includes:
Ways to Improve Credit Score
To make a little extra money, work a side hustle.
How can I get approved for a mortgage if I have credit card debt?
If you have credit card debt, it’s a good idea to find out how your credit scores can influence your loan approval. Then you can make an educated decision on whether to pay off your credit card debt. Here’s what you need to know.
FICO vs. VantageScore: The most common credit score models.
A credit score is a numerical representation of your credit history, comparing you to millions of people who also have a credit history. These credit scores are commonly referred to as FICO scores, the most common of which is the VantageScore 3.0. Both the VantageScore 3.0 and FICO scores are widely used in lending decisions, and for mortgage applications.
The VantageScore 3.0, which is FICO’s new scoring system, has a built-in impact on your mortgage approval, and it’s very positive.
What are some ways to manage my credit card debt?
Greg McBride, chief financial analyst at Bankrate.com, and Matthew M. Chingos, senior fellow at the Urban Institute, discuss what steps you should take to get approved for a mortgage if you have credit card debt and what the terms and conditions are with the various cards you have.
5 Ways to Get Approved for a Mortgage if You Have Credit Card Debt:
According to the experts, you should:
Keep your balances under 50% of your total available credit Limit the number of credit cards you have and their respective limits Avoid charge cards. Use your credit card for emergencies only.
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