Can You Buy a House With Credit Card Debt?
The answer is yes, it is possible to get a mortgage with credit card debt — though you may face additional hurdles. Understanding how credit card debt affects the mortgage approval process can help you better prepare for your homebuying journey.
Key takeaways
- Having credit card debt doesn’t disqualify you from buying a house, but your lender may charge you a higher mortgage rate or require a larger 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.
- Reducing your credit card debt can help boost your home loan approval odds.
How credit card debt affects your credit score
If you’re carrying credit card debt, you’re far from alone — as of this writing, American consumers owe $1.211 trillion in credit card debt. But your outstanding credit card balances (as well as any other debt you still owe, for that matter) will impact your credit score.
Your credit score is a reflection of what’s on your credit report and gives mortgage lenders an idea of your financial reliability — the higher your score, the less risky lenders perceive you. Borrowers with 780 credit scores or higher generally get the best mortgage rates on conventional loans.
Don’t know your score? Get your free credit score on LendingTree Spring today.
What factors affect your credit score?
Your FICO credit score, which is used by most lenders, is made up of five different categories:
1. Payment history: 35%
2. Amounts owed: 30%
3. Length of credit history: 15%
4. New credit: 10%
5. Credit mix: 10%
Credit card debt falls under the “amounts owed” category, which simply means the total amount of debt you owe. 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 variety of credit types you have) also matters, and completely ditching debt can negatively impact your score. Instead, keep your balances low and pay them in full each month.
Learn more about how to pay off credit card debt.
Can you buy a house with bad credit?
Yes, you can buy a house even if you have bad credit. Fannie Mae and Freddie Mac, the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) all offer low-credit home loan options.
Trying to buy a house with bad credit is slightly different from buying while carrying credit card debt, however. You can carry a high amount of debt fairly responsibly (for instance, with on-time payments and a decent credit score). But if your financial picture has slipped into “bad credit” territory, you almost certainly have some significant dings against you, such as late or missed credit card payments, that must be corrected.
Learn more about getting a bad credit home loan.
How credit card debt affects getting a mortgage
Getting a mortgage with existing debt is possible, depending on how much debt you have and how well you’re managing it. 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. Keeping your DTI ratio at 45% or less can help you qualify for a mortgage, though some lenders make exceptions for DTI ratios up to 50% — especially if you have a high credit score or large down payment.
DTI requirements by loan type
| Loan type | DTI maximum |
|---|---|
| Conventional loan | 45% |
| FHA loan | 43% |
| VA loan | 41% |
| USDA loan | 41% |
2. Credit score
You typically can’t get a mortgage with a credit score lower than 500. As mentioned above, credit utilization measures how much of your available credit is in use, and it’s an important factor in your credit score. So if you have a lot of credit card debt, your credit score will suffer.
Credit score requirements by loan type
| Loan type | Minimum credit score |
|---|---|
| Conventional loan | 620 |
| FHA loan |
|
| VA loan | No minimum, but most lenders require a 620 |
| USDA loan | No minimum, but most lenders require a 640 |
3. Down payment
For many, saving for a down payment is one of the biggest hurdles on the path to buying a home, and your credit score can either shrink or raise the height of that bar. 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 your credit score impacts your mortgage interest rate
In general, the higher your credit score, the better mortgage rates you can access. The table below shows how your credit score impacts the mortgage rate you’re quoted and what your monthly payment could be. This example is based on FICO data, and includes annual percentage rate (APR) and monthly payment details for a 30-year fixed-rate, $400,000 loan.
| FICO credit score range | APR | Monthly payment (principal and interest) |
|---|---|---|
| 760-850 | 6.770% | $2,600 |
| 700-759 | 7.043% | $2,673 |
| 680-699 | 7.180% | $2,710 |
| 660-679 | 7.259% | $2,731 |
| 640-659 | 7.396% | $2,768 |
| 620-639 | 7.555% | $2,812 |
The main takeaway here is that your credit card debt isn’t isolated as a major component of your mortgage application; rather, it’s one of several key factors lenders consider. How that debt relates to your income, along with your credit score, is what lenders care about.
Should you buy a house if you have credit card debt?
Having credit card debt doesn’t automatically mean you shouldn’t buy a house. To make that decision, you should look at your financial situation as a whole, including the type and amount of debts you have, your income, job stability and whether you’re applying alone or with a co-borrower (and what their financial situation is like).
If your credit card debt is manageable, and you have a steady income and an emergency fund, buying a home could be on the table. On the other hand, if you have unpredictable income and are unsure how you’d pay to fix an appliance or a burst pipe, it may make sense to hold off until your finances are a bit more stable.
Can you refinance a mortgage if you have credit card debt?
You can refinance your mortgage if you meet the minimum refinance requirements. The specific guidelines can vary depending on the loan program, lender and type of refinance, such as a rate-and-term or cash-out refinance.
With a cash-out refi, you’ll replace your existing mortgage with a new, bigger loan. You’ll receive the difference between the old and new loans in cash, which you can use for various purposes, including debt consolidation.
5 tips for buying a house with credit card debt
If you meet other minimum mortgage requirements for your chosen loan type, you can buy a house with credit card debt. Still, you should keep the following tips in mind to stay on track for a loan approval.
1. Review your credit report
The last thing you want when applying for a mortgage is to be caught off guard by surprises in your credit history. Pull your free credit report from AnnualCreditReport.com and review it for accuracy. If you do come across an error, dispute it directly with the three credit reporting bureaus (Equifax, Experian and TransUnion).
2. Pay more than the minimum
The best way to tackle credit card debt, whether or not you’re applying for a home loan, is to pay more than the bare minimum. Your mortgage lender may have access to your trended credit data, which shows how much you’re paying toward your debts each month. If you pay more than what’s due, it demonstrates your commitment to handling your debt responsibly.
3. Consolidate your credit card debt
Remember, if your credit utilization ratio is higher than 30%, your credit score can suffer. Consolidating your debt using an unsecured personal loan could help you better manage and pay off your balances, as well as boost your credit score. Unlike credit cards, a personal loan is an installment loan that you (or your creditors) receive in a lump sum. Just be sure to consolidate your debt six months to a year before applying for a mortgage — or even earlier. Doing so in the middle of the homebuying process could derail your loan approval.
Read more about our picks for the best debt consolidation loans.
4. Don’t rack up more debt
Resist the urge to take out a new auto loan or swipe those credit cards to buy furniture for your new home. More debt will raise your DTI ratio, and may hurt your chances of getting to the closing table on schedule.
5. Ask for a credit limit increase
Requesting a limit increase on one or more of your existing credit cards can improve your credit utilization ratio. For example, if you charge $1,000 on a card with a $3,000 limit, your credit utilization is about 33%. But if your card issuer increases your limit to $5,000, your credit utilization drops to 20%.
Keep in mind that applying for new credit usually results in a hard inquiry on your credit report, which can cause a temporary dip in your score. If your score drops below the minimum requirement, the lender could withdraw your mortgage approval.
Frequently asked questions
Yes, you can use your credit card to make a mortgage payment. However, you may need a third-party service to do so and you could have to pay fees or interest charges — so be sure to read the fine print. You should also understand how this use of your credit card will affect your credit score, since charging a mortgage payment will almost certainly increase your credit utilization rate.
It may be more challenging to qualify for a mortgage with no credit, but it can be done. In fact, Fannie Mae and Freddie Mac have alternative requirements that apply to borrowers with no credit who want to take out a conventional loan. The FHA, VA and USDA also allow for alternative methods of verifying your lending risk.
No, most lenders won’t allow you to use a personal loan for a mortgage down payment. The rules governing conventional, FHA, VA and USDA loans prohibit this.
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.
You may be able to transfer your credit card debt to your mortgage by doing a cash-out refinance. This involves taking out a bigger loan than what you currently owe and using the loan proceeds to pay off your credit card balances. However, this option will likely extend your loan term and cost you more in interest over time.