Can I buy a home with credit card debt?
If you meet other minimum mortgage requirements for your chosen loan type, you can buy a house with credit card debt.
Having credit card debt 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 (DTI) ratio is above what lenders allow.
Keeping credit utilization under 25% to 30% on each card is a good general rule. This credit card debt affects your credit score and can make it drop. If your score drops too much, you could be denied a mortgage or pay a higher interest rate — which makes your mortgage payments much higher.
As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28%-35% of that debt going towards servicing a mortgage. 1 The maximum DTI ratio varies from lender to lender.
If you have a monthly income of $4,000, and your typical monthly debt payments are $1,500, your DTI ratio is 37.5% ($1,500 divided by $4,000). Mortgage lenders want to see a debt-to-income (DTI) ratio of 43% or less. Anything above that could lead to the rejection of your application.
This means your total monthly debts, including your prospective mortgage and any other debts like car payments or credit card bills, shouldn't exceed 43% of your monthly income.
The general rule of thumb is that you shouldn't spend more than 10 percent of your take-home income on credit card debt.
Buying property with your credit card is possible, although it's not straightforward. You need to have a good credit rating and a good credit card.
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%.
You can consolidate debt in a mortgage re-fi and point the home equity cash towards credit card debt. But like everything else, there are pros and cons to doing so. Take a look at our advice on what you need to know on refinancing your home to pay off debt.
What is the 28 36 rule?
The 28/36 rule dictates that you spend no more than 28 percent of your gross monthly income on housing costs and no more than 36 percent on all of your debt combined, including those housing costs.
The good news is, having loans or credit cards won't stop your application in its tracks. However, the size of your outstanding balances could affect how much you can borrow. Mortgage lenders look at a number of different factors when deciding whether to give you a mortgage.
For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.
| Generation | Average Credit Card Debt |
|---|---|
| Generation Z | $3,262 |
| Millennials | $6,521 |
| Generation X | $9,123 |
| Baby boomers | $6,642 |
Lenders like to see debt-to-income ratios lower than 36% when considering applications for loans, so it's a good benchmark to use when looking at your budget, although "the lower, the better," says Tim Melia, a CFP with Embolden Financial Planning.
Paying off your credit cards prior to applying for any home mortgage loan is always a good idea, however it's very common that a borrower will learn in the middle of the loan processing that they may need to lower their debt-to-income ratio in order to better qualify for the mortgage loan.
“That's because the best balance transfer and personal loan terms are reserved for people with strong credit scores. $20,000 is a lot of credit card debt and it sounds like you're having trouble making progress,” says Rossman.
Credit card debt is always difficult to deal with, but as it gets larger, paying it back gets a whole lot harder. If your total credit card balances are $25,000 or higher, they'll go up by hundreds of dollars every month because of interest. And it could cost you $500 or more just to make minimum payments.
$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt. There are a few things you can do to pay your debt off faster - potentially saving thousands of dollars in the process.
Lenders look at your credit card debt, too. They will use the total minimum required payments that you must make each month on your credit cards to determine your monthly credit card debt.
Can you pay a downpayment on a house with a credit card?
One of the biggest hurdles here is mortgage lenders usually require you to have your money sitting in a bank account for 60 days before you can use it for a down payment. This requirement alone means paying for a down payment with a credit card the way you normally would isn't possible.
After understanding what we have discussed above, you probably will want to hold off from applying for a new credit card within the six months before applying for a mortgage, since in that period your score may still be lower as an effect from the new credit card.
Is $2,000 too much credit card debt? $2,000 in credit card debt is manageable if you can pay more than the minimum each month. If it's hard to keep up with the payments, then you'll need to make some financial changes, such as tightening up your spending or refinancing your debt.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
The bottom line. $15,000 can be an intimidating total when you see it on credit card statements, but you don't have to be in debt forever. If you're struggling to make your minimum payments every month and you don't see light at the end of the tunnel, sign up for a debt management program to get out of debt fast.
