My wife and I are recovering from a pretty sticky financial situation. Not too long ago we had $175k in credit card debt. We're now down to about $100k with solid cash flow and are looking to get into a home later this year or early next -- likely with the NFCU Homebuyer's Choice program. We have had some preliminary conversations with NFCU and they indicate we would qualify for what we want now, but we'd like to give it a bit more time before we do so. We have the option now to take out two 5-year, $50k consolidation loans at 11.625%, a bit less than the 15% weighted average rate of our current CC debt. My question is -- would we benefit from transferring our credit card debt to installment debt for the purposes of securing a mortgage later this year? Our FICO scores are 740-750, and our combined income is $240k.
So, is consolidation an option we should consider to lower utilization and transfer the debt from revolving to installment? Would this stand to help or hurt our situation when it comes to applying for a mortgage in 6-9 months?
If consolidation is not a bad idea -- should we do it now, or continue to pile money on cards and do it when our balances are lower -- lets say under $75k? If so, how far ahead of applying for a mortgage should we do it? I'd imagine the benefit to consolidating as late as possible would be that the installment payments would be lower for the purposes of DTI calculations than if we "lock in" installment payments at current levels.
Thanks for your input!
We did a consolidation loan a few months before applying and since it lowered our DTI as well as increasing our scores, it wasnt a issue.
I will also add the loan officer said that the revolving accounts, although at 0, could be issue with the underwriter but the undewriter never brought it up. The reason being was that they showed we werent using the cards after the consolidation so they were okay with the loan replacing that debt.
Thanks, that makes sense. It seems like waiting to as long as I can might be in my best interest since the lower DTI is probably most important.