Having credit card debt does not necessarily preclude you from getting a mortgage. However, the level of your existing debt is one of a number of factors that will be considered by lenders.
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One of the indicators used by lenders is the back-end ratio that compares your total debt payments, including your prospective mortgage payment, to your income. Most lenders do not want this ratio to exceed 36 per cent. For example, if your monthly income is £1,950 and your monthly credit card payment is £117, your mortgage payment would have to be less than £585.
The severity of effect that your credit card debt will have on your mortgage application will be influenced by how you have managed it. Your credit report, pulled by almost every lender who would issue a mortgage, will show whether you have always paid your bills on time or been consistently delinquent.
Your credit card debt may also lower your credit score. If you are maxing out your credit cards, making late payments or repeatedly applying for new credit cards, your credit score will suffer, making it harder for you to get approved for a mortgage.
A credit score of 760 or higher can get you the best interest rates. However, if your credit card use is dragging down your score, you will pay a higher rate. Depending on the condition of the credit markets, a score of 620 or lower could force you to shop for a subprime mortgage, which will result in much higher rates. If your score is under 520, you will typically have a hard time being approved for a mortgage at all.
Other factors like large cash reserves or a large down payment can make you less of a credit risk, even though you carry substantial credit card debt.
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