Does credit card debt affect mortgage approval?

Written by j.e. cornett
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When your mortgage application is being approved, lenders want to know that you are a good credit risk. High credit card debt balances can make lenders think twice about financing a home.

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Credit Limits

Lenders want to know that you are capable of paying for a home -- which means living within your means. If your credit cards are maxed out, it brings your credit score down, which, in turn, may make lenders sceptical about your ability to pay your bills.

Debt vs. Income

Your debt-to-income ratio is an important factor in whether your mortgage is approved. If you are paying off lots of debt -- including or limited to credit cards -- lenders may find your debt-to-income ratio to be too high.

Because a mortgage payment should be around 28 per cent of your gross monthly income, and lenders do not like to see a debt-to-income ratio above 36 per cent, this leaves you little wiggle room for outstanding debts like credit cards.

Considerations

"If you have credit card debt at all, you're probably not ready to be a homeowner," says MSN Money's Liz Pulliam Weston -- and if your debt is significant, lenders are likely to agree. Pay down credit card debt, or better yet, pay it off before applying for a mortgage, and your chances of being approved improve.

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