Yes, you can get a mortgage even if you have credit card debt, but you may have to go through some extra steps. How credit card debt affects the mortgage approval process can help you get ready for the process of buying a home. Key takeaways.
How Much Credit Card Debt is Too Much for a Mortgage Loan?
Getting a mortgage to buy your dream home is an exciting milestone. But having too much existing debt like credit card balances can jeopardize your chances of getting approved. So how much credit card debt is too much when applying for a mortgage?
There’s no one-size-fits-all number, as a lot depends on your income, other monthly payments, and credit score. But there are a few key guidelines to follow to make sure your credit card debt doesn’t derail your homebuying plans.
There are several things you can do to improve your chances of getting the green light. Let’s go over them one by one.
How Credit Card Debt Impacts Mortgage Approval
When you apply for a mortgage, lenders dig deep into your finances to assess the risk of lending to you. There are three key factors credit card debt affects:
- Debt-to-Income Ratio
This number, which is also written as DTI, shows how much of your gross monthly income goes toward paying off your debts. Most lenders want your DTI to be below 80% in order for you to be approved. If you have a lot of credit card debt, your DTI will be higher.
- Credit Score
Lenders check your credit score to determine your creditworthiness. Too much credit card debt can lower your score by increasing your credit utilization ratio. The lower your score, the higher interest rate you’ll pay.
- Down Payment
You’ll need cash saved up for a down payment. But credit card debt makes it harder to accumulate savings. If you have a lot of debt, lenders may want you to have more money up front.
So paying down credit card debt before applying for a mortgage can help improve your DTI, credit score, and cash savings – all of which help your case.
How Much is Too Much?
As a general rule, keeping your total credit card debt below 8% of your annual gross income is recommended. For example, if you earn $60,000 per year, you’d want your total balances to be under $4,800.
If you go over this limit, it starts to hurt your credit score and mortgage eligibility. But there are some other rules you should also know:
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Aim for credit utilization under 30% on each card
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Keep monthly credit card payments under 5% of gross income
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Ensure total monthly debt payments are below 36% of gross income
If your credit card debt exceeds these benchmarks, it’s time to pay down balances before applying for a mortgage.
Strategies to Reduce Credit Card Debt
Here are some proven methods to knock down credit card balances quickly before you apply:
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Funnel any extra cash towards paying off your highest rate card first
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Seek out lower interest rate cards and transfer balances
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Consider consolidating debts into a lower rate personal loan
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Ask creditors for lower rates or waived fees to help pay off balances faster
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Boost your income with a side gig to put towards balances
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Cut discretionary spending to free up more cash for debt repayment
Even paying off a portion of your credit card debt can benefit your DTI. Let’s say you owe $20,000 across multiple cards. Knocking it down to $15,000 would lower your monthly payments and potentially get you under the 36% DTI cutoff.
Tips for Homebuying with Credit Card Debt
If you have existing balances but need to buy soon, here are some tips:
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Shop around for lenders that may be more flexible on credit card debt
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Boost your down payment to offset higher DTI or lower credit
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Be ready to explain how you plan to pay off credit card debt
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Consider rolling balances into your mortgage if suggested by the lender
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Get pre-approved so you know your realistic price range
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Improve other areas like income and savings to offset credit card debt
The key is showing lenders you can manage your current debt responsibly while taking on a mortgage. Paying off balances before applying gives you the best chance for approval. But even reducing balances or having a solid payoff plan can go a long way in easing lenders concerns.
With the right preparation and pay down strategy, your credit card debt doesn’t have to be a dealbreaker in getting the keys to your new home. Know where you stand, make a plan to boost your credit profile, and you’ll be well on your way to mortgage qualification.
What factors affect your credit score?
Your FICO credit score, which is used by most lenders, is made up of five different categories:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
The total amount of debt you owe is what “amounts owed” refers to. Credit card debt is an example of this. The most important factor in this category is your credit utilization ratio, which measures the percentage of available credit you’re currently using. For example, if you have $20,000 in available credit and you owe $3,000, then your credit utilization ratio is 15%.
A higher credit utilization ratio tells mortgage lenders that you’re overextending yourself and may be more likely to fall behind on your monthly payments.
Tip: Ideally, your credit utilization ratio shouldn’t exceed 30% — individually and collectively — on your credit cards.
However, don’t be so quick to pay down all your cards to a zero balance or close your paid-off accounts to get a higher credit score. Your credit mix (the different types of credit you have) is also important, and getting rid of all your debt can hurt your score. Instead, keep your balances low and pay them in full each month.
Learn more about how to pay off credit card debt.
Down payment
A big problem for many people who want to buy a house is saving for a down payment. Depending on your credit score, that bar can go up or down. With a loan backed by the FHA, for example, you can get away with only a 3. 5% down payment if you have a 580 credit score or higher. But if your credit score is below 580, you’ll have to put down at least 10%.
Down payment requirements by loan type
| Loan type | Down payment |
|---|---|
| Conventional loan | 3% |
| FHA loan | 3.5% |
| VA loan | 0% |
| USDA loan | 0% |
How Much Debt Can I Have and Still Get a Mortgage?
FAQ
How does credit card debt affect a mortgage?
Credit card debt affects three main factors that matter greatly in your ability to get a mortgage: 1. Debt-to-income (DTI) ratio Lenders use your DTI ratio — the percentage of your gross monthly income used to make monthly debt payments — to decide if you can afford a mortgage.
Should you pay off credit card debt before applying for a mortgage?
Paying off credit card debt before applying for a mortgage can improve your chances of getting approved and getting a lower interest rate. Your debt-to-income ratio is an important thing lenders look at when you apply for a home loan, and credit card debt can change it. A home is one of the single biggest purchases the average American will make.
Can credit card debt stop you from getting a mortgage?
Having credit card debt isn’t going to stop you from qualifying for a mortgage unless your monthly credit card payments are so high that your debt-to-income (DTI) ratio is above what lenders allow. Divide your monthly debt by your gross (before taxes) income to get your debt-to-income ratio. This number is used by banks and other mortgage lenders.
How can I get a mortgage with bad credit?
To get a mortgage with bad credit or a high debt-to-income (DTI) ratio, consider reducing debt before applying. One strategy is the debt snowball method: pay off the credit card with the lowest balance first and then apply that payment to the next card.
Can you buy a house if you have credit card debt?
You can still buy a house even if you have credit card debt, but your lender may charge you a higher mortgage rate or ask for a bigger down payment. High amounts of credit card debt can affect your credit score and debt-to-income ratio — two key metrics mortgage lenders use to determine your loan eligibility.
Does credit card debt affect your credit score?
Having credit card debt affects your credit score and can make it drop. Keeping credit utilization under 25% to 30% on each card is a good general rule. If your score drops too much, you could be denied a mortgage or pay a higher interest rate — which makes your mortgage payments much higher.
How much credit card debt is too much to buy a house?
It varies by lender, but generally, the less credit card debt you have, the better your approval odds. If your monthly debt payments, including your credit card payments, are more than 43% to 45% of your monthly income, you may have trouble getting a mortgage loan.
How much credit card debt is acceptable for a mortgage?
Can I buy a house with $10,000 in credit card debt?
You can buy a house with credit card debt. However, they will want the minimum payment amount for each debt. Then they will look at your income per month and determine your debt to income ratio. If it’s over a specific threshold it could make it harder. I would focus on paying off as much debt as you can first.
Is it okay to have credit card debt when applying for a mortgage?
Having credit card debt isn’t going to stop you from qualifying for a mortgage unless your monthly credit card payments are so high that your debt-to-income …Jan 30, 2025