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

Thrugelmir

goldmask wrote: »

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.

If you have no need of the cards clearing and cancelling will do no harm. Just allow sufficent time so that this registers prior to the mortgage application. Might as well make as make as you can while you can.

GMS

It never ceases to amaze me how people, partly thanks to this site think that 0% credit cards are not 'real debts'.

When applying for a mortgage the lender couldn't care if it is 0% or 30% it is still a debt. As previous posters have said they will take a set percentage as a commitment.

Pay the cards off before applying for a mortgage. Wait until the credit reports show a zero balance.

huzzer84

GMS wrote: »

It never ceases to amaze me how people, partly thanks to this site think that 0% credit cards are not 'real debts'.

Hold on, that wasn't what the OP thinks. They have the cash sitting aside to pay the cards off, on top of a deposit. The OP deserves a good deal of credit for making full use of these 0% deals to help them build up what is a hefty deposit in the first place.

They're not 'real debts' if you stooze properly, always having the cash in place to pay them off (hopefully earning a decent amount of interest).

Knowing how the lender treats them is worthwhile knowledge, though I don't necessarily agree with the underwriters on that one - I guess they just assume that any excess savings are going to be spent and not used to clear the card debt.

Thrugelmir

mhurren wrote: »

Knowing how the lender treats them is worthwhile knowledge, though I don't necessarily agree with the underwriters on that one - I guess they just assume that any excess savings are going to be spent and not used to clear the card debt.

Underwriters don't see assets just liabilities. In addition they don't know the terms of the debt whethers its 0% or 20%.

So underwriters will take a cautious view.

GMS

Having a credit card balance IS a debt, plain and simple regardless of the interest rate applied to it. Even if it is 0% the balance is still outstanding.

To suggest having a credit card balance has helped build a deposit is ridiculous. Any cash lying in an account matching the credit card balance would need to be paid to clear the balance.

Spending at 0% or 20% is still running up a debt.

huzzer84

GMS wrote: »

To suggest having a credit card balance has helped build a deposit is ridiculous.

It's not ridiculous, it is true. The OP can make another £100 by doing what they're doing, which has clearly been contributing to their wealth for some time.

OK, it may be a small amount compared to the size of the deposit, but as Mr Tesco says, every little helps.

Try reading up on stoozing, you may just like it. If the 0% spending is ALWAYS normal spending, ie food, fuel, etc, and an at least EQUAL amount is put away in savings, you earn at X% (whatever the net savings rate is) and pay at 0%. At the end of the 0% deal you pay off in full from the savings.

As a mortgage adviser, I'd have thought you'd recognise that business model? It's what any good retail bank/building society does - gets in more interest than it pays out.

I fully accept that the underwriter will liabilities and not assets, and as such the amount that the OP can borrow will be restricted by the outstanding debt, whether that debt is 0% or 30%. I think we have answered that one.

GMS

As a mortgage adviser I understand the business model of applying for mortgages with credit card balances outstanding. Even at 0% there is a minimum monthly payment which will be taken by any lender as a commitment, usually at minimum of 3% per month.

Assuming the rules of 'stoozing' are followed correctly then there is no problem, pay off the balance and pocket the interest earned which at present will be almost nothing.

Problems arise when 'stoozers' do not save as much as they spend and need to transfer balances which will incur a fee, wiping out the interest gained.

Borrowing in any form will hinder a mortgage application.

huzzer84

OK, I just think that the OP needs a bit of credit here. I only take exception because the OP, no, people in general, have been labelled as not knowing what 'real debts' are, and a means of structuring your finances to bring in an extra couple of hundred quid a year (I've got about £10k on 0%, allowing me to save interest against my mortgage at 2.5% = £250/year saved for a bit of cash flow management) towards a deposit for a house (not much but it all adds up) is labelled as ridiculous.

The OP was asking a reasonable question, and obtained a reasonable answer. There's no need to be harsh on them for asking that question, I thought that was what this board was for...

I'm actually in a very similar position to the OP, and the advice to clear these debts is something I'd thought about, but didn't quite know the answer to in terms of the affordability equation - so I've learned something too from your responses GMS, and the other useful posts above.

Gorgeous_George

If the minimum payment is 3% per month, your stoozed savings would need to earn 3% per month to keep the affordability calculation neutral. Seems stupid but nobody said banks were anything else. You don't make billions of pounds by being clever.

GG

delmar39

Yes, it came as part of our mortgage offer that we had to clear credit card debts and then show them the evidence that we'd done it. They wouldn't offer the mortgage without this.