I’m in the process of trying to get approved for a mortgage. I don’t have alot of debt. I have 8,000 on my car left. And 1,500 in credit cards. My husband has 4,000 in credit card debt. We were thinking about doing a debt consolidation and emptying the credit cards and having the one large monthly payment. Will this hurt, or improve our chances of getting approved for a decent loan for a house. Should just let them run our credit and debt and see what we get and consolidate only if we get denied. I don’t know much of this and would like to buy a house within this year. Please help! Will choose best answer! Thanks in advance!
Erica,
If you combined all the debt into one credit card- I presume- you’ll be maxing out the credit card you’ll be transferring the debt to and this could hurt your credit score. The fact that your debt is spread it may actually be better for you because your lender won’t think that you are about to reach your credit limit and apply for more credit.
I would suggest if you haven’t done it yet, to find out your 2 credit scores first (the ideal is above 720) and check also your credit reports to make sure that there isn’t anything wrong in them. The credit score goes from 400 to 820- the higher it is the more attractive you look to lenders.
You and your husband each have your own credit reports and scores and you both qualify to check them for free once a year- just go to annualcreditreport.com. Make sure you check all 3 credit bureaus (Equifax, Trans Union, and Experian). I don’t know if you’ve heard in the news that as of April or March Experian is no longer offering to the public access to buy the same credit score they provide the lender.
I don’t know in what State you are writing from, but in some places the banks are looking for a 20 to 25% down payment. They will also want to see that you have extra money left in the bank (savings) for the closing of the house (usually like 1-4%). They also want that your monthly costs for the house (i.e. mortgage+ property tax+ insurance to be no more than 30% or less of your income). They will take into consideration moneys garnished from your paychecks for alimony- if you or husband pays any.
Other things that may affect your credit score (and so your bank may see it as a red flag) is if you open or close lines of credit, or if you have many lenders checking your credit so they can approve you because it gives the impression to your mortgage lender that you are shopping for more debt- remember that they think of debt as risk.
The more debt you have, the riskier you become for them. The riskier you seem, the higher the interest rates they offer you. So if right now the mortgage rate is 4.75% but when your mortgage lender checks your credit report and sees many inquiries on your report, it may increase your mortgage interest rate to even 6% or even higher based on how much of a risk they see in you. A higher interest rate means that your monthly payments will be higher, and may hinder your ability to qualify for a mortgage in the first place.
Note: My husband and I’ve been in the market looking for a property to buy. Research the area where you are looking to buy, and research the rental price for similar homes to the one you wish to purchase. If renting a similar house cost you say, $1000/mo., then your monthly expense for the house you want to buy including mortgage + water + property taxes + insurance should come up to equal or lesser the price of a rental – otherwise, you are buying a too pricey home.
Erica, I hope I’ve been able to convey this in a clear manner. Good luck to you.