If you’re thinking about applying for a mortgage loan in the near future, a major topic to consider is your debt. Lenders will consider your entire financial and credit picture when determining the types of loans and rates you qualify for, and the debt you carry and your history repaying it will be key among the factors they look at.
At Wasatch Peaks Credit Union, we offer a wide range of mortgage loans, including bad credit home loans for those in need. Considering your debt in advance of applying is important not only for the approval process, but also for all the costs involved in a mortgage – not only the monthly payments but also closing costs, home insurance, utilities, possible repairs and potential HOA fees. With this in mind, here are a few tips from our professionals on some areas where you can look to better manage your debt in advance of applying for a home loan.
Credit Card Debt
According to NerdWallet, the average US household maintains over $16,000 in credit card balances. And while this number may seem high (it is), it’s important to realize that it’s only truly valuable when compared to the credit limit in place.
Across your entire credit profile, including any lines of credit, the general goal when approaching a mortgage – or just in general – is to not be utilizing more than 30% of your available credit limit at any one time. If you have three cards with a combined limit of $10,000, then, you want to keep your combined debts to around $3,000 or less whenever possible. If you’re dealing with several high-interest debts that are blocking your ability to maintain this ratio, look into debt consolidation methods that will take your highest-interest debts and combine them into a single lower payment.
Some people think of student loans as impossible to work with outside directly paying them down, but this isn’t necessarily the case when it comes to mortgages. Back in 2017, Fannie Mae made significant changes to its underwriting requirements and similar areas, making it much easier for those still carrying significant student loan balances to obtain a mortgage and use their home equity to reduce their student debt. Look into these areas if you carry a large student debt balance but still want to consider a mortgage.
A Detailed Plan
If you’ve determined your debt is too high and needs to be lowered before you apply for a mortgage, it’s vital to come up with and stick to a detailed plan. Simply making big payments when you can and hoping for the best isn’t going to get the job done. Rather, list out the things you truly need compared to those you can be without, and create a budgeting plan that will help you reduce your debt in a systematic way.
For more on reducing debt before applying for a mortgage, or to learn about any of our home loan, car loan or construction loan programs, speak to the staff at Wasatch Peaks Credit Union today.