How does credit card debt affect a mortgage application?

How does credit card debt affect a mortgage application?

A mortgage lender wants to assess if the applicant has enough income and assets to support their mortgage payment for at least three years after purch

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A mortgage lender wants to assess if the applicant has enough income and assets to support their mortgage payment for at least three years after purchase. A mortgage payment is required every month until the mortgage term ends which is usually 5-25 years depending on mortgage type.
When a mortgage lender is assessing an application for mortgage financing, they want to know what the applicant’s current financial situation is. This includes any credit card debt that may be associated with this person because it can affect the mortgage loan being applied for.

How credit card debt can hurt (or help) a mortgage application

If an individual has existing debts such as credit cards or personal loans it will appear on their credit report and have a large impact on their ability to get approved for a mortgage loan.
Mortgage lenders often look at mortgage applicants with existing credit card debt as being financially irresponsible. An applicant will need to provide evidence that they are in control of their finances and have the discipline to pay off all debts on time before applying for a mortgage. If an applicant is currently making repayments on existing debts however, this will not affect mortgage approval at all as long as the mortgage lender is satisfied that mortgage payments can be managed alongside other monthly commitments.
This includes paying off all outstanding credit card debt which may include closing any unused or old credit cards because mortgage lenders can view this as an indicator of financial irresponsibility. Applicants who cannot afford mortgage repayments and have existing credit card debt should save enough money for three months worth of mortgage repayments before applying for a mortgage loan.
To improve chances of getting approved with a mortgage, an individual should pay in advance any outstanding debts and create a monthly budget to show how they will manage mortgage repayments on top of their other commitments.

The bottom line

Mortgage lenders look at the mortgage loan application as a mortgage process, not just one component that is assessed. It’s important for applicants to provide relevant information about all financial obligations including credit card debt because it can impact mortgage approval and mortgage affordability.
Mortgage lenders need to know that mortgage payments can be managed alongside other monthly commitments. If an applicant has outstanding credit card debt they may find it hard to convince mortgage lenders that mortgage repayments can be managed on top of other monthly commitments which is why mortgage approvals might be refused if there are existing debts.