Financing in Teaneck>Question Details

Bridges, Home Buyer in New York, NY

Is it better to pay off credit card debt before taking out a mortgage OR keep the debt to afford more $ down?

Asked by Bridges, New York, NY Sat Jan 10, 2009

We were preapproved for a $500K mortgage on joint income of $170K plus assets (of which $103K is in liquid savings) despite $21K in credit card debt. The card debt is at 0% interest which goes up to 10% on 3/1/09. Should we pay off the $21K (meaning down payment can only be 5-10%, thus incurring PMI)? Or should we surf all or part of it to another card offering 3% interest 5% balance xfer fee? Or take out a loan against our 401K?

Help the community by answering this question:


Unless you have excessive credit card debt the important thing is that you are making regular and timely payments on your cards.

Our recomendation is to talk with the your loan specialist for their advice. They will be able to provide the guidance you are seeking.

Good luck
0 votes Thank Flag Link Sun Feb 8, 2009
Thanks, everyone! Outcome: We realized it was actually due 2/9/09 (not 3/1) and paid it all off this week (me on 2/4 and spouse on 2/6) because surfing it to another of our existing cards we could do no better than 4-5%. We did this not knowing we would find a home and need to make an offer by 2/6! At that point, I did seek out a mortgage broker for a preapproval; was candid w/him that the $21K was leaving our savings though the transaction would not yet be on the credit report. But when he saw our W2s and checked our scores he liked what he saw so DID preapprove us at a great rate! The sellers made a counter-offer, which means we really could use that $21K now that it's gone. But though we have some regrets, on balance we feel a tremendous sense of relief to have the debt paid off.
0 votes Thank Flag Link Sun Feb 8, 2009
Hi Bridges,
It is important to know that paying a lot of debt in a short time normally REDUCES credit score. It sounds a little odd for most people since they think that having no debt at all is a good thing......

To make a long story short, the best thing to do is to run the loan scenario through the system to see if you are approved and under what terms. It is not advised to take any action prior to.

Good luck.
0 votes Thank Flag Link Sat Feb 7, 2009
I'd say pay off your debt first. A $21k debt, with a combined income of $170k should take no time at all. If you want to go hard core, your looking at 1847 per month to be debt free in 1 year, Or 970 per month for 2 years. There's also the option of getting a "Cheaper" home. Just because your pre-approved for 500k doesn't mean you have to spend that much.
Remember when you enter the home buying process, your ability to pay your mortgage is determined by your gross income, not your net. Simply put its based on your income prior to taking any deductions into account. Try reassessing with your net worth with debt included to see how you fair then. Just like you can get a pre- approved loan, your mortgage is pre-affordable.
0 votes Thank Flag Link Mon Jan 19, 2009
Bridges as a mortgage consultant I advise you to do nothing until you consult with your mortgage professional and an application is submitted. The loan officer will be able to put the application through automated underwriting to see if FNMA underwriting system likes the loan scenario or not. If it's approved it can get a commitment without having a property to buy wihich is much better than a Pre-approval. If you take action first you may limit your options.

Ultimately the underwriter may make certain stipulations in regards to your application as well, so yoi may want to submit an application first.
0 votes Thank Flag Link Thu Jan 15, 2009
Its kind of a catch 22.
You will find that banks are really tightening up on underwriting of loans and credit card debt is foremost in their minds.
However you are going to find it almost impossible to find a jumbo loan with 10% down
You really need to discuss this issue with a good mortgage agent and find your options and this is not really the forum where you will find your answers.
0 votes Thank Flag Link Sat Jan 10, 2009
bridges first step would be to meet with a local and trusted mortgage broker to prequailfy you to see what programs you quailfy for. These questions will be best answered by them when they are looking at your credit score and finances. You will need to write both scenarios down and see the pros an cons of each. In addition once you do get prequailified you will want to hire a buyer broker, in most cases you can do it at no additional cost to you, they get paid a fee offered in mls by the listiong agent and paid atr closing. this way you will have someone to assist you through each step of the buying process. good luck in your search.
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0 votes Thank Flag Link Sat Jan 10, 2009
GREAT QUESTION: Best review with mortgage broker and CPA determine short / long term goals. If you pay off debt NEVER CLOSE AN ACCOUNT it takes approx. 60 days update credit bureau files. HOWEVER it is undetermined the amount of increase overall credit score. If it increases where makes a difference in long monthly payment could be worth pay it off. Both of these pro's need be involved for best interest.
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0 votes Thank Flag Link Sat Jan 10, 2009
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