My boyfriend and I are trying to buy a home. He has a credit score of 700, but $18,000 in what he owes in cards. Will he have to pay these first?

Asked by Shawna & Andrew96, Fresno County, CA Fri Apr 8, 2011

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Dan Tabit, Agent, Issaquah, WA
Fri Apr 8, 2011
BEST ANSWER
Andrew,
As long as those cards have high balances and payments, they will reduce your buying potential. If you have enough income between you both to purchase what you want and make the other payments you'll be fine. General rule of thumb, combine your gross income monthly, multiply by .45 (45%) subtract all credit debt (credit cards, car payments, lines of credit) what remains will be the maximum mortgage payment you may be approved for.
Different programs allow different ratios, some up to 50% some lower, depending on your credit scores, down payment etc. so you'll need to meet with a lender to get the final numbers. Best of luck.
2 votes
Dan Tabit, Agent, Issaquah, WA
Fri Apr 8, 2011
Shawna,
Before he puts all his or your cash to paying off the debt, PLEASE meet with a lender. Sometimes, the cash is more important than the absence of debt. If the scores are affected, paying down the debt, but not off may make the difference to raise the scores and qualify you for a better rate or program.
Meeting with a lender can happen weeks or months before you are necessarily ready to be active in the market. It can make all the difference in getting the right deal on the loan, which is often more expensive than the house.
2 votes
Vicky Spiva, , Redding, CA
Fri Apr 8, 2011
Many people have more debt than this. An experienced loan officer should be able to look at his income and what the minimum payments are and determine if he would have to pay some, all, or none of them off. If he needs to pay them off in order to get the financing, he needs to do this before he applys and has his credit run. If he doesn't do this, then the lender will need to re-pull his credit to show they are at a -0- balance. If you have additional questions or would like to know what he qualifies for, call me at 530-945-0484(cell) or my office toll free number is 877-933-3330. Good luck
1 vote
Guarantee Re…, , Fresno County, CA
Fri Apr 8, 2011
Not necessarily! It all depends on your total debt ratios. As long as you both make enough income to pay your debt plus make the house payment you should be OK. You should consult with an experienced lender who will be glad to help you determine your qualification for a home loan. If you do not qualify now your lender will be able to help guide you so you will qualify soon.

Mark A Pretzer
Broker Associate with Guarantee Real Estate
Cell: 559-288-4967
Email: mark@markpretzer.com
Web Reference:  http://markpretzer.com
1 vote
Eric J Soder…, , Pleasanton, CA
Fri Apr 8, 2011
Hi Andrew,

While paying off the debt may not be required it may help his score to spread the debt over two cards. If the card with the $18000 debt on it is maxed out this hurts a credit score. Spreading the amount over two cards will probably help the credit score. If he has an empty card, transfer 1/2 of the debt to that card. If not, he may be able to get another card at 0 percent on transfers. Watch out for the fee charged to do this. It is usually 3 to 4%. that could be as much as $360 so read the fine print and understand the trade off. If it lowers the credit score enough to lower the rate he will get on a loan it could be worth it. Have him speak with a lender. The site I referenced below has some good info.

Best Regards,

Eric Soderlund
Realtor,GRI,SRES,SFR
Steven Anthony Realty
1 vote
, ,
Fri Apr 8, 2011
If your debt ratio is low enough to qualify with that debt, than it does not have to be paid off. The only reason he would have to pay the $18,000 in credit card debt off first, is if your debt ratio is too high to qualify with it. Your debt ratio (aka debt-to-income ratio or DTI) is a percentage determined by the amount of monthly debt you have showing on your credit report, in relation to your income. An example would be: $10,000 in debt, with a montly payment of $500. If your monthly income is $2,000, your DTI would be 25%. I am happy to answer any other questions you have. Feel free to email me.
1 vote
Shawna & And…, Home Buyer, Fresno County, CA
Fri Apr 8, 2011
This is the only debt he has. He doesn't even have a car payment, it is paid off.
0 votes
Shawna & And…, Home Buyer, Fresno County, CA
Fri Apr 8, 2011
He is working on paying them off. It's a total of 5 cards. He has no derogatory info on his report at all. I was just curious how much he would have to pay off or if we could start looking now.
0 votes
Mack McCoy, Agent, Seattle, WA
Fri Apr 8, 2011
Why isn't he paying those off, Shawna?

I think I speak for the entire real estate community in saying that we want buyers to enter the market, but I'm guess that with $18K in credit card debt, he doesn't have much cash on hand, and one thing that we think responsible homeowners should have is six months of cash or liquid assets on hand, justincase, and believe you me, just-in-case happens all too often to new homeowners.

People buying houses together should have partnership agreements, and an hour's visit with a family law attorney beats you being incapacitated and the two families arguing about how to dispose of the property and which side gets how much.

So, to answer your question, he may not have to pay those cards off first, and there are two tiny little details to attend to before you actually close on a property.

All the best,
0 votes
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