Credit Card Balances and Mortgage Applications

Macboero

My wife and I are looking to get a mortgage in the next couple of months.

We are doing well gathering the funds for deposit, stamp duties and legal fees. However both of us have credit card balances.

Would I be right in saying that these balances would be better of being consolidated into a loan? Or are there good reasons to leave them as they are?

ACG

If you are applying yourself check what would reduce your borrowing capacity the most.

Im assuming paying it off and reducing your deposit is not an option?

kingstreet

A lender will tax you;-

the monthly payment on a loan

or

perhaps 5% of the balance of a credit card.

Use different lenders' affordability calculators to see how that impacts you.

Let_Us_See

kingstreet wrote: »

A lender will tax you

That's a new one for a lender.:o

Thrugelmir

Macboero wrote: »

Would I be right in saying that these balances would be better of being consolidated into a loan? Or are there good reasons to leave them as they are?

How much debt do you owe?

kingstreet

Let_Us_See wrote: »

That's a new one for a lender.:o

I like the expression. I do normally put it in inverted commas to indicate it's not really being taxed, but effectively the lender charges your income for having credit commitments, so you are allowed to borrow less.

Macboero

We owe about 7k each on our credit cards.

Thrugelmir

That may have some impact. Depending on the circumstances of your application. Particularly if the deposit appears to be borrowed money. Debt and savings don't sit in separate pots on your personal balance sheet.

Macboero

We don't have any borrowed money earmarked for the deposit.

My wife has a 'gift for deposit' from her godfather, amounting to £10k
I have £10k worth of shares to sell.
We have about £9k of cash.
We have other money coming in as well.

We need:
£23k for the deposit.
£14k for stamp duty on completion.
£2k for legal fees (guestimate).

We believe we will be able to get to that within the time scales, but not if we pay down the credit cards. Ironically, paying down the credit cards is projected to be easier afterwards, as the predicted monthly payments on the mortgage we are looking at are significantly less that the rent we are paying now, but isn't always the way?

The payments are £300 a month less than our current rent.
Council tax will be roughly a little less £20 a month.
Fuel bills should be better than the current £230 a month average.
So we are looking to be quids in, and this is even before the mid year pay rises kick in, which are expecting to be fairly decent after a few years hiatus!

I had a play with a few mortgage calculators, and it would seem that having the credit card balances is preferable to having an unsecured loan to the same amount. I can't quite understand why that would be though. From a financial point of view for us, we would prefer the loan. The lenders clearly have some different priority.

Mrsbear

I'm no mortgage advisor but from the amount you have stated for stamp duty and deposit, you are wanting a 95% mortgage on a £460k house.

I would have thought you'll struggle with that whilst have highish levels of debt regardless of whether it's a loan or on cards.

What are you salaries?

Macboero

We are first time buyers. Total income is £78k exc. bonuses.