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DadofThree

Question before home purchase

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Good Evening, I have a question I was wondering if someone familiar with the home buying process might answer for me if they can.

 

Our FICO scores for both of us are around 700. We are looking to purchase a home in the next few months. Our debt right now is sitting at 61% across 5 different cards $4800. We are paying this down as best we can and continue to do so. 2 months ago was around 75% My question is would it be ok to take a low interest loan to consolidate and pay off all the debt of $4800 and only have the one payment and lower interest or is that not a wise move before going for a home loan?

 

Thank you for any advice you can give.

 

 

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If you dont need to I wouldnt

It could cause confusion and extra work if things are not updated on your credit by the time you apply

 

If your overall debt to income is high then it may be a good way to drop that down -

 

Lenders do not look at the utilization percentage - that can impact scores but your scores are fine

 

How is your debt to income looking - Minimum monthly payments divided by gross monthly income - ??

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FICO has a good calculator that shows you the potential impact of a higher score on mortgage rates. If you can get yours up, it may benefit you significantly in the long run.

 

Generally consolidating high balance credit card debt with an installment loan can help with high utilization. There are a few caveats though. In this case you will have a new loan payment that will figure into your debt to income ratio. The payment on a 5 year installment loan (for example) will no doubt be larger than the minimum payment reporting on your credit cards, so that could affect the amount of the home loan payment you will be approved for. That may not be an issue but if you're just squeaking by on the amount you need to qualify for, it could be an issue.

 

Also a new account with a balance could be a risk factor and it could catch the attention of an underwriter. I'd talk to a trusted mortgage professional first to get their take.

 

Are you both applying together? Do you both share that debt? Who has the lowest middle score? I ask because it's rare that couples have all the same accounts on their credit reports and remember the lowest of the two middle scores is likely to be used to qualify for the loan. Do you both have to be on the mortgage to qualify? If not, that could affect your options or strategy.

 

I think the main issue here is timing. if you have several months before you apply it may work out Ok but if you are crunched for time it may be riskier.

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Brain thank you for the insight. Our debt to income ratio is 25.07% as it stands today. Obviously we are working to improve that every week but is that a decent ratio? Ive read 43% is the maximum?

 

GerriDetweiler that was one of the reasons we were thinking about taking the loan to raise our scores even more. We are both applying together and we share "most" of the debt together. But my wife has much more student debt then I do on her report. And we do have time before making the home purchase as we continue to put savings away for the downpayment and closing costs.

 

We look forward to any further insights as we proceed and connote to research and learn. :)

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