Getting a Mortgage When You Have Credit Card Debt
Yes, you can get a mortgage with credit card debt, but lenders will look at how much you owe and how you pay it
Mortgage lenders do not require you to be debt-free before you borrow. What they care about is whether your total monthly debt payments — including the mortgage itself — will be manageable on your income. Credit card debt counts against you because it shows up on your credit report and because the monthly minimum payments reduce how much house you can afford.
The real question is not whether you can borrow, but how much. A lender will calculate your debt-to-income ratio, which compares your total monthly debt payments to your gross monthly income. Most lenders want this ratio to stay below 43 percent. If you already have credit card payments eating into that number, you have less room left for a mortgage payment.
Your credit score also matters. Credit card debt that you pay on time actually helps your score. Credit card debt you pay late, or that sits unpaid, hurts it. A lower score means higher interest rates on the mortgage, which costs you thousands of dollars over the life of the loan.
Key Takeaways
- Lenders calculate your debt-to-income ratio by dividing your total monthly debt payments by your gross monthly income, and most want this to stay below 43 percent.
- Credit card debt reduces the size of the mortgage you can afford because the minimum payments count as debt obligations.
- Paying down credit card balances before you apply for a mortgage can lower your debt-to-income ratio and improve your credit score.
- A mortgage lender will pull your credit report and see every credit card account, so hiding debt is not an option.
- Even with credit card debt, you may still may have access to for a mortgage if your income is high enough and your payments are current.
How lenders calculate how much house you can afford
When you apply for a mortgage, the lender runs numbers to find your maximum loan amount. They start with your gross monthly income — the money you earn before taxes. Then they subtract all your existing monthly debt payments: car loans, student loans, credit cards, personal loans, and anything else that shows up on your credit report.
What is left is the amount available for a mortgage payment. Most lenders will let you use up to 43 percent of your gross income for all debt combined. Some will go to 50 percent if your credit score is high and your income is stable, but 43 percent is the standard.
Here is a concrete example: if you earn $5,000 per month gross, 43 percent is $2,150. If you already pay $400 per month on credit cards and $300 on a car loan, you have $1,450 left for a mortgage payment. That $1,450 limits the size of the loan you can take, which limits the price of the house you can buy.
The solution is straightforward: lower your credit card payments before you apply. Paying down the balance reduces the minimum payment, which increases the room in your debt-to-income ratio for a mortgage.
Why your credit score affects the mortgage rate you get
Your credit score is a three-digit number that summarizes your borrowing history. It is built mostly from your payment history (35 percent of the score), the amount you owe relative to your credit limits (30 percent), and the length of your credit history (15 percent). Credit card accounts affect all three of these.
When you apply for a mortgage, the lender checks your credit score. A higher score means you get a lower interest rate. A lower score means you pay more interest. On a $300,000 mortgage, the difference between a 6 percent rate and a 7 percent rate is roughly $200 more per month — $2,400 per year, or $86,000 over a 30-year loan.
Credit card debt that you pay on time actually helps your score because it shows you can manage multiple accounts responsibly. Credit card debt that you pay late, or that sits unpaid, damages your score. If you have missed payments on credit cards, those will stay on your report for seven years, and they will cost you money on every mortgage you take during that time.
The best move is to bring all your credit card accounts current before you apply for a mortgage. If you have old missed payments, you cannot erase them, but you can show the lender that you have paid on time for the months since then.
When paying down credit card debt before applying makes sense
Paying down credit card balances before you apply for a mortgage is usually worth the effort because it improves both your debt-to-income ratio and your credit score. The question is how much to pay down.
If you have a few months before you plan to apply, focus on the cards with the highest balances or highest interest rates. Paying down a $5,000 balance to $2,000 cuts your minimum payment roughly in half, which immediately improves your debt-to-income ratio. Your credit score will also improve because you have lowered the percentage of your credit limit that you are using — this is called your utilization ratio.
If you are applying for a mortgage soon, prioritize differently. Pay down the cards with the highest minimum payments first, because that directly increases the room in your debt-to-income ratio. A card with a $200 minimum payment that you can eliminate saves you $200 per month in debt obligations, which might be the difference between may have access to for a $300,000 house and a $350,000 house.
Do not close credit card accounts after you pay them down. Closing an account lowers your total available credit, which raises your utilization ratio and can hurt your score. Leave the accounts open with a zero balance.
What happens if you have high credit card debt but high income
If you earn a very high income, credit card debt may not stop you from getting a mortgage. The debt-to-income ratio is a percentage, so a person earning $15,000 per month can carry more total debt than a person earning $5,000 per month and still stay under the 43 percent threshold.
However, high income does not erase the other problems that credit card debt creates. If you have missed payments on credit cards, those missed payments will still appear on your credit report and will still cost you a higher interest rate on the mortgage. If you have very high balances, the lender may worry that you are overleveraged and may deny the loan even if the math technically works.
Lenders also look at your debt history, not just your current numbers. If you have a pattern of carrying high credit card balances, they may see you as a higher risk. The safest path is still to pay down the balances before you apply, even if you technically could may have access to without doing so.
How to prepare your credit card accounts for a mortgage application
Start by getting a copy of your credit report from all three bureaus — Equifax, Experian, and TransUnion. You can order these free once per year at annualcreditreport.com. Look for errors, such as accounts that are not yours or payments that are marked late when you paid on time. Dispute any errors with the bureau directly.
Next, make a list of every credit card account you have, the balance on each, the credit limit, and the minimum payment. Calculate your total monthly credit card payments. This is the number that will be subtracted from your income when the lender calculates your debt-to-income ratio.
Pay all your bills on time for at least three months before you apply for a mortgage. Lenders look at your recent payment history, and a few months of on-time payments can offset older missed payments. If you have a late payment from two years ago, it still hurts your score, but recent on-time payments show the lender that you have changed your habits.
Do not apply for new credit cards or take out new loans in the months before you apply for a mortgage. Each application creates a hard inquiry on your credit report, which temporarily lowers your score. New accounts also lower the average age of your credit history, which lowers your score. Wait until after the mortgage closes to apply for anything else.
What to expect when the lender reviews your credit cards
When you apply for a mortgage, the lender will pull your full credit report. They will see every credit card account you have, whether it is open or closed, whether you are current or late, and your balance on each. They will also see the credit limit, so they can calculate your utilization ratio.
The lender will ask you to explain any late payments, high balances, or accounts in collections. If you have a reasonable explanation — a medical emergency, a job loss, a one-time mistake — tell them. Lenders understand that life happens. What they want to know is whether you have addressed the problem and whether it is likely to happen again.
If you have credit card debt that you are actively paying down, that is fine. Tell the lender what you are doing and show them the progress. If you have credit card debt that you are ignoring, the lender will see it as a sign that you may ignore the mortgage too.
Frequently Asked Questions
Will paying off credit cards right before I apply for a mortgage help my score?
Paying off a balance will lower your utilization ratio, which helps your score. However, the improvement takes a few weeks to show up on your credit report. If you pay off a card and apply for a mortgage the next day, the lender may still see the old balance. Pay down the cards at least a month before you apply so the new information has time to report.
Does a mortgage lender care if I have zero balance on my credit cards?
A zero balance is fine and actually looks good to a lender. It shows you can manage credit responsibly. The lender will still count the credit card accounts as part of your credit history, which helps your score. Just do not close the accounts after you pay them off.
What if I have credit card debt in collections?
A debt in collections will significantly lower your credit score and will make it harder to get a mortgage. Some lenders will work with you if the collection is old and you have paid it off, but you will pay a higher interest rate. If the collection is recent and unpaid, most lenders will deny the mortgage until you settle it.
Can I use a balance transfer to move credit card debt before applying for a mortgage?
A balance transfer moves the debt from one card to another, but it does not erase the debt. The lender will still see the total amount you owe. A balance transfer can help if the new card has a lower interest rate and you are trying to pay down the balance faster, but it will not improve your debt-to-income ratio.
How much credit card debt is too much to get a mortgage?
There is no fixed amount. It depends on your income and your other debts. If your total monthly debt payments — including the credit card minimums — exceed 43 percent of your gross monthly income, most lenders will not approve a mortgage. Use an online debt-to-income calculator to see where you stand.