Should Credit Card Bills be paid before Buying a Home in Encinitas?

Paying off your credit card may not be the best idea when you’re getting your finances together to buy a home in Encinitas. When you’re applying for a home loan, it actually can be detrimental in securing the loan by reducing debt or cancelling a credit card.

When you decrease the credit, it could affect your credit score, your cash in the bank, and your debt-to-income. According to an article on Realtor.com, you should take these three factors into consideration if you are thinking of paying of your debt.

Credit Card Debt and Cash Reserves

Typically a robust savings plan is implemented if you’re thinking of buying a home in Encinitas so you could build a fund for your down payments and closing costs.

The median price of a home in San Diego County is at $420,000, while the rest of the country’s median price is $200,000. In most places the Federal Housing Administration (FHA) loan will require at least a down payment of $7,000 – which is 3.5 percent down. That said you could also do a five percent down payment for conventional loans as a minimum.

Three-five percent are need for closing costs, and that comes between another $6,000-10,000, so all together you will need between $13,000-20,000 in cash to buy a home in Encinitas.

In case of an emergency, you also need cash reserves and money for moving expenses. Although lenders don’t always need cash reserves – you should still accumulate as much as two months of mortgage payments ready just in case.

When all of the estimated costs are determined, and you have the ability to make payments with money still available, paying off your credit card would be a good idea.

Debt-to-income ratio

Your monthly minimum payments on all of your debt must a maximum of 43 percent of your monthly gross income in order to qualify for a conventional mortgage. For borrows with low credit or few cash reserves, some lenders need to calculate a lower debt-to-income ratio. If the debt of your credit card is much too high, qualifying for a loan could be an issue for your home in Encinitas. With the FHA’s lessened restrictions, special circumstances could be ironed out as well.

Issues with Your Credit Score

To determine loan approval and the interest rate you will have to pay for a conventional loan, lenders focus on the credit score of the customer in Encinitas. If your credit score is lower than 680, some or all of your debt should be paid off to enhance your score. You may qualify for an FHA loan pending on the rest of your credit profile or if your credit score is lower than 640.

When you’re taking care of debt, make sure you don’t combine all of it to one lone card. This actually    damages your credit score more so, and it’s more important you that don’t get rid of any credit cards or accounts. This is a way to reduce your overall credit available and shorten your credit history.

One your making the decision whether or not you should pay off your debts is reaching out to a mortgage lender.

By Linda Moore

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