Do you have to pay off credit cards before appying for mortgage?

goldmask · 2 March 2011 at 5:09PM

My wife and I are preparing to apply for a mortgage soon. We have 4 credit cards with a balance of £11800 (total limit is 16300). These are all 0% purchase cards, and we have enough cash in saving accounts to pay the card debts and 25% deposit for the mortgage. However, two of the 0% purchase card deals will end later this year (September and December). Can we persuade the mortgage lenders to allow us paying the cards off at the end of the 0% deal? Or will it be better to pay everything off before application? What are the common strategy to deal with credit card debts before mortgage application? Any advices will be greatly appreciated.

bumpybecky · 2 March 2011 at 5:18PM

I had to pay off the cards we had for stoozing before HSBC would agree our remortgage (approx 2.5 years ago now) but we were only just inside the affordability. We had about £30k on the cards (and more in savings). We sent all the paperwork off to HSBC and I paid they cards off before the advanced the funds. I don't remember ever having to prove I'd paid them off though, not sure if credit reference agency would have recorded it in time.

Thrugelmir · 2 March 2011 at 5:24PM

The lender will factor in repayments on unsecured debt into their affordability calculations when you apply for a mortgage. You won't have an opportunity to persuade, the lender you approach will make a decision based on their lending criteria at the time.

If the cards are no longer 0%, then repaying the balance seems the logical course of action. As repaying cards with 16% to 20% interest rates takes a long time.

Leon_W · 2 March 2011 at 5:26PM

It can impact on affordability more than you think.

Take a lender that offers 4x income and you earn £50k. Amount you can borrow would be £200k.

Now you have £10k on credit cards (and it doesn't make any difference if they are 0% or 30%) a lender might assume 5% of amount outstanding per month which is £500. They then annualise that and take it off your income so your £50k goes down to £44k.

Therefore the maximum mortgage would be only £176,000. Which is quite a difference for just having £10k on a card.

herbiesjp · 2 March 2011 at 5:28PM

If you fit affordability to have the mortgage and other debts, you do not have to clear them.

Lenders will take into account either a 3% or 5% payment to the credit cards, irrespective of being on 0% or not.

If this lowers the mortgage amount available to a figure lower than is needed, you will need to clear all or in part and provide proof to the lender.

Do your sums carefully!

goldmask · 2 March 2011 at 5:32PM

Thrugelmir wrote: »

The lender will factor in repayments on unsecured debt into their affordability calculations when you apply for a mortgage. You won't have an opportunity to persuade, the lender you approach will make a decision based on their lending criteria at the time.

If the cards are no longer 0%, then repaying the balance seems the logical course of action. As repaying cards with 16% to 20% interest rates takes a long time.

0% deals on two cards will expire soon, we will pay them off certainly. But the other two will expire later this year, so I will prefer to pay at that time. But to be honest, it will only save us no more than 100 quids. So probably it's not worth all the hassles.

goldmask · 2 March 2011 at 5:38PM

herbiesjp wrote: »

If you fit affordability to have the mortgage and other debts, you do not have to clear them.

Lenders will take into account either a 3% or 5% payment to the credit cards, irrespective of being on 0% or not.

If this lowers the mortgage amount available to a figure lower than is needed, you will need to clear all or in part and provide proof to the lender.

Do your sums carefully!

May I ask whether I need to close the cards completely? Will the mortgage lenders take the available credit into consideration?

dimbo61 · 2 March 2011 at 5:38PM

Think you have answered your own question then ???
Save perhaps £100 in interest and risk losing your mortgage offer and property you are trying to buy or lose the mortgage deal which will cost you a hell of a lot more over 3/5 years.
Clear all debts and save as much as possible over coming months

herbiesjp · 2 March 2011 at 5:41PM

goldmask wrote: »

May I ask whether I need to close the cards completely? Will the mortgage lenders take the available credit into consideration?

Most lenders will be happy to see NIL balances, rather than closing the card/account down.

goldmask · 2 March 2011 at 5:43PM

Leon_W wrote: »

It can impact on affordability more than you think.

Take a lender that offers 4x income and you earn £50k. Amount you can borrow would be £200k.

Now you have £10k on credit cards (and it doesn't make any difference if they are 0% or 30%) a lender might assume 5% of amount outstanding per month which is £500. They then annualise that and take it off your income so your £50k goes down to £44k.

Therefore the maximum mortgage would be only £176,000. Which is quite a difference for just having £10k on a card.

So it makes sense to clear the balance completely. What kind of proof they will require? The latest statement show 0 balance, credit report show 0 balance or cancellation letter for the credit card? I am wondering whether I should clear the balance well ahead of the formal application.

dimbo61 · 2 March 2011 at 6:17PM

Get rid before you fill in application and have copies of credit card statements showing £NIL balance

Do you have to pay off credit cards before appying for mortgage?

Comments

Confirm your email address to Create Threads and Reply

🚀 Getting Started

Categories

Is this how you want to be seen?

Get our FREE Weekly email full of deals & guides - and it’s spam-free